Presidio Property Trust, Inc. [SQFT] Filings

10-Q 1 sqft20230930_10q.htm FORM 10-Q sqft20230930_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

FORM 10-Q

___________________________________________________________

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period from _____ to _____

001-34049

(Commission file No.)

___________________________________________________________

PRESIDIO PROPERTY TRUST, INC.

(Exact name of registrant as specified in its charter)

___________________________________________________________


Maryland		33-0841255
(State or other jurisdiction of incorporation or organization		(I.R.S. employer identification no.)

4995 Murphy Canyon Road, Suite 300, San Diego, CA 92123

(Address of principal executive offices)

(760) 471-8536

(Registrant’s telephone number, including area code)

Title of each class of registered securities	Trading Symbol(s)	Name of each exchange on which registered
Series A Common Stock,	SQFT	The Nasdaq Stock Market LLC
$0.01 par value per share

9.375% Series D Cumulative Redeemable Perpetual Preferred Stock,	SQFTP	The Nasdaq Stock Market LLC
$0.01 par value per share

Series A Common Stock Purchase Warrants to	SQFTW	The Nasdaq Stock Market LLC
Purchase Shares of Common Stock

________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging Growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At November 13, 2023, registrant had issued and outstanding 13,129,943 shares of its Series A Common Stock, $0.01 par value per share.

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Index			Page

Part I. FINANCIAL INFORMATION:			5
Item 1. FINANCIAL STATEMENTS:			5
Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022			5
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)			6
Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)			7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)			9
Notes to Condensed Consolidated Financial Statements (unaudited)			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures about Market Risk			38
Item 4. Controls and Procedures			39
Part II. OTHER INFORMATION			39
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			40
Item 4. Mine Safety Disclosures			40
Item 5. Other Information			40
Item 6. Exhibits			41
Signatures			42

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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this report and in our other filings with the Securities and Exchange Commission (the “SEC”). Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, financial condition, liquidity, capital resources, cash flows, results of operations and other financial and operating information. Forward-looking statements included in this report include, but are not limited to, statements regarding purchases and sales of properties, plans for financing and refinancing our properties, the adequacy of our capital resources, changes to the markets in which we operate, our business plans and strategies, and our payment of dividends. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Important factors that may cause actual results to differ from projections include, but are not limited to:

•

inherent risks associated with real estate investments and with the real estate industry;

•

significant competition may decrease or prevent increases in our properties' occupancy and rental rates and may reduce the value of our properties;

•

a decrease in demand for commercial space and/or an increase in operating costs;

•

failure by any major tenant (or a substantial number of tenants) to make rental payments to us because of a deterioration of their financial condition, an early termination of their lease, a non-renewal of their lease or a renewal of their lease on terms less favorable to us;

•

challenging economic conditions facing us and our tenants may have a material adverse effect on our financial condition and results of operations;

•

our failure to generate sufficient cash to service and/or retire our debt obligations in a timely manner;

•

our inability to borrow or raise sufficient capital to maintain and/or expand our real estate investment portfolio;

•

adverse changes in the real estate financing markets, including potential increases in interest rates and/or borrowing costs;

•

potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance;

•

inability to complete acquisitions or dispositions and, even if these transactions are completed, failure to successfully operate acquired properties and/or sell properties without incurring significant defeasance costs;

•

our reliance on third-party property managers to manage a substantial number of our properties, brokers and/or agents to lease our properties;

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•

decrease in supply and/or demand for single family homes, inability to acquire additional model homes and increased competition to buy such properties;

•

terrorist attacks or actions and/or risks relating to information technology and cybersecurity attacks, loss of confidential information and other related business disruptions;

•

failure to continue to qualify as a REIT;

•

adverse results of any legal proceedings;

•

changes in laws, rules and regulations affecting our business;

•

the other risks and uncertainties discussed in Risk Factors in our Annual Report on Form 10-K filed with the SEC on March 28, 2023; and

•

the possibility that if any of the banking institutions in which we deposit funds ultimately fails, we may lose any amounts of our deposits over federally insured levels which could reduce the amount of cash we have available to distribute or invest and could result in a decline in our value.

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	*September 30,*			*December 31,*
	*2023*			*2022*
	(Unaudited)
ASSETS
Real estate assets and lease intangibles:
Land	$	20,580,587		$	19,189,386
Buildings and improvements		133,531,747			125,979,374
Tenant improvements		15,636,305			13,861,839
Lease intangibles		4,110,139			4,110,139
Real estate assets and lease intangibles held for investment, cost		173,858,778			163,140,738
Accumulated depreciation and amortization		(37,845,097	)		(34,644,511	)
Real estate assets and lease intangibles held for investment, net		136,013,681			128,496,227
Real estate assets held for sale, net		2,434,624			2,016,003
Real estate assets, net		138,448,305			130,512,230
Other assets:
Cash, cash equivalents and restricted cash		7,778,764			16,516,725
Deferred leasing costs, net		1,501,812			1,516,835
Goodwill		2,423,000			2,423,000
Investment in Conduit Pharmaceuticals marketable securities (see Notes 2 & 9)		23,996,141			—
Other assets, net (see Note 6)		3,785,367			3,511,681
Total other assets		39,485,084			23,968,241
Investments held in Trust (see Notes 2 & 9)		-			136,871,183
TOTAL ASSETS	$	177,933,389		$	291,351,654
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	101,059,368		$	95,899,176
Mortgage notes payable related to properties held for sale, net		1,428,848			999,523
Mortgage notes payable, total net		102,488,216			96,898,699
Accounts payable and accrued liabilities		5,294,349			4,028,564
Accounts payable and accrued liabilities of SPAC (see Notes 2 & 9)		-			5,046,725
Accrued real estate taxes		1,506,532			1,879,875
Dividends payable		478,253			178,511
Lease liability, net		23,989			46,833
Below-market leases, net		14,509			18,240
Total liabilities		109,805,848			108,097,447
Commitments and contingencies (Note 2 & 9):
SPAC Class A common stock subject to possible redemption; none as of September 30, 2023 and 13,225,000 shares as of December 31, 2022 (at $10.45 per share), net of issuance cost of approximately $6,400,000		-			130,411,135
Equity:
Series D Preferred Stock, $0.01 par value per share; 1,000,000 shares authorized; 898,940 shares issued and outstanding (liquidation preference $25.00 per share) as of September 30, 2023 and 913,987 shares issued and outstanding as of December 31, 2022		8,989			9,140
Series A Common Stock, $0.01 par value per share, shares authorized: 100,000,000; 11,859,726 shares and 11,807,893 shares were issued and outstanding at September 30, 2023 and December 31, 2022, respectively		118,597			118,079
Additional paid-in capital		181,483,892			182,044,157
Dividends and accumulated losses		(121,638,764	)		(138,341,750	)
Total stockholders' equity before noncontrolling interest		59,972,714			43,829,626
Noncontrolling interest		8,154,827			9,013,446
Total equity		68,127,541			52,843,072
TOTAL LIABILITIES AND EQUITY	$	177,933,389		$	291,351,654

See Notes to Condensed Consolidated Financial Statements

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Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	*For the Three Months Ended September 30,*						*For the Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Revenues:
Rental income	$	4,262,790		$	4,243,887		$	12,534,431		$	12,884,280
Fees and other income		221,384			148,088			615,107			401,697
Total revenue		4,484,174			4,391,975			13,149,538			13,285,977
Costs and expenses:
Rental operating costs		1,478,479			1,434,225			4,452,628			4,365,781
General and administrative		1,635,610			1,509,139			5,413,413			4,306,835
Depreciation and amortization		1,351,705			1,318,164			4,054,109			3,973,582
Total costs and expenses		4,465,794			4,261,528			13,920,150			12,646,198
Other income (expense):
Interest expense - mortgage notes		(1,375,199	)		(1,382,120	)		(3,579,381	)		(3,485,693	)
Interest and other income, net		254,486			590,586			1,394,687			757,318
Gain on sales of real estate, net		757,285			1,307,258			2,294,574			4,057,527
Loss on Conduit marketable securities		(17,682,154	)		—			(17,682,154	)		—
Gain on deconsolidation of SPAC		40,321,483			—			40,321,483			—
Income tax expense		(134,620	)		(294,996	)		(632,147	)		(819,520	)
Total other income, net		22,141,281			220,728			22,117,062			509,632
Net income		22,159,661			351,175			21,346,450			1,149,411
Less: Income attributable to noncontrolling interests		(673,279	)		(1,114,928	)		(2,155,212	)		(3,032,806	)
Net income (loss) attributable to Presidio Property Trust, Inc. stockholders	$	21,486,382		$	(763,753	)	$	19,191,238		$	(1,883,395	)
Less: Preferred Stock Series D dividends		(527,873	)		(538,286	)		(1,595,606	)		(1,616,397	)
Less: Series A Warrant dividend		—			—			—			(2,456,512	)
Net income (loss) attributable to Presidio Property Trust, Inc. common stockholders	$	20,958,509		$	(1,302,039	)	$	17,595,632		$	(5,956,304	)

Net loss per share attributable to Presidio Property Trust, Inc. common stockholders:
Basic & Diluted	$	1.77		$	(0.11	)	$	1.49		$	(0.51	)

Weighted average number of common shares outstanding - basic & dilutive		11,851,343			11,780,090			11,841,847			11,784,500

See Notes to Condensed Consolidated Financial Statements

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Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Three and Nine Months Ended September 30, 2023 and 2022

(Unaudited)

											*Additional*			*Dividends and*			*Total*			*Non-*
	*Preferred Stock Series D*						*Common Stock*				*Paid-in*			*Accumulated*			*Stockholders’*			*controlling*			*Total*
	*Shares*			*Amount*			*Shares*		*Amount*		*Capital*			*Losses*			*Equity*			*Interests*			*Equity*
Balance, December 31, 2022		913,987		$	9,140			11,807,893	$	118,079	$	182,044,157		$	(138,341,750	)	$	43,829,626		$	9,013,446		$	52,843,072
Net (loss) income		—			—			—		—		—			(995,540	)		(995,540	)		387,081			(608,459	)
Dividends paid to Series A common stockholders		—			—			—		—		—			(287,655	)		(287,655	)		—			(287,655	)
Dividends to Series D preferred stockholders		—			—			—		—		—			(535,448	)		(535,448	)		—			(535,448	)
Distributions in excess of contributions received		—			—			—		—		—			—			—			(518,642	)		(518,642	)
Remeasurement of SPAC shares to redemption value		—			—			—		—		(158,900	)		—			(158,900	)		—			(158,900	)
Accrued excise tax on SPAC redemptions		—			—			—		—		(1,140,683	)		—			(1,140,683	)		—			(1,140,683	)
Repurchase of Series D preferred stock, at cost		(386	)		(4	)		—		—		(6,943	)		—			(6,947	)		—			(6,947	)
Vesting of Common Stock		—			—			27,371		274		28,466			—			28,740			—			28,740
Balance, March 31, 2023		913,601		$	9,136			11,835,264	$	118,353	$	180,766,097		$	(140,160,393	)	$	40,733,193		$	8,881,885		$	49,615,078
Net (loss) income		—			—			—		—		—			(1,299,604	)		(1,299,604	)		1,094,852			(204,752	)
Dividends paid to Series A Common Stockholders		—			—			—		—		—			(302,496	)		(302,496	)		—			(302,496	)
Dividends to Series D Preferred Stockholders		—			—			—		—		—			(532,285	)		(532,285	)		—			(532,285	)
Distributions in excess of contributions received		—			—			—		—		—			—			—			(1,442,668	)		(1,442,668	)
Remeasurement of SPAC shares to redemption value		—			—			—		—		(247,094	)		—			(247,094	)		—			(247,094	)
Repurchase of Series D preferred stock, at cost		(12,226	)		(122	)		—		—		(204,803	)		—			(204,925	)		—			(204,925	)
Vesting of Common Stock		—			—			14,446		144		50,855			—			50,999			—			50,999
Balance, June 30, 2023		901,375		$	9,014			11,849,710	$	118,497	$	180,365,055		$	(142,294,778	)	$	38,197,788		$	8,534,069		$	46,731,857
Net income		—			—			—		—		—			21,486,382			21,486,382			673,279			22,159,661
Vesting of restricted stock		—			—			10,016		100		17,027			—			17,127			—			17,127
Dividends paid to Series A Common Stockholders		—			—			—		—		—			(302,495	)		(302,495	)		—			(302,495	)
Dividends to Series D Preferred Stockholders		—			—			—		—		—			(527,873	)		(527,873	)		—			(527,873	)
Reversal of accrued excise tax on SPAC redemptions prior to deconsolidation		—			—			—		—		1,140,683			—			1,140,683			—			1,140,683
Repurchase of Series D Preferred Stock, at cost		(2,435	)		(25	)		—		—		(38,873	)		—			(38,898	)		—			(38,898	)
Distributions in excess of contributions received		—			—			—		—		—			—			—			(1,052,521	)		(1,052,521	)
Balance, September 30, 2023		898,940		$	8,989			11,859,726	$	118,597	$	181,483,892		$	(121,638,764	)	$	59,972,714		$	8,154,827		$	68,127,541

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													*Additional*			*Dividends and*			*Total*			*Non-*
	*Preferred Stock Series D*						*Common Stock*						*Paid-in*			*Accumulated*			*Stockholders’*			*controlling*			*Total*
	*Shares*			*Amount*			*Shares*			*Amount*			*Capital*			*Losses*			*Equity*			*Interests*			*Equity*
Balance, December 31, 2021		920,000		$	9,200			11,599,720		$	115,997		$	186,492,012		$	(130,947,434	)	$	55,669,775		$	9,812,845		$	65,482,620
Net (loss) income		—			—			—			—			—			(828,486	)		(828,486	)		1,208,676			380,190
Vesting of restricted stock		—			—			196,250			1,963			762,423			—			764,386			—			764,386
Dividends paid to Series A Common Stockholders		—			—			—			—			—			(1,298,252	)		(1,298,252	)		—			(1,298,252	)
Dividends to Series D Preferred Stockholders		—			—			—			—			—			(539,056	)		(539,056	)		—			(539,056	)
Remeasurement of SPAC common stock subject to possible redemption upon IPO, Public Warrants and Private Placement Units, net of offering costs		—			—			—			—			(4,023,113	)		—			(4,023,113	)		—			(4,023,113	)
Distributions in excess of contributions received		—			—			—			—			—			—			—			(258,410	)		(258,410	)
Balance, March 31, 2022		920,000		$	9,200			11,795,970		$	117,960		$	183,231,322		$	(133,613,228	)	$	49,745,254		$	10,763,111		$	60,508,365
Net (loss) income		—			—			—			—			—			(291,156	)		(291,156	)		709,202			418,046
Vesting of restricted stock		—			—			8,198			82			27,955			—			28,037			—			28,037
Dividends paid to Series A Common Stockholders		—			—			—			—			—			(1,311,202	)		(1,311,202	)		—			(1,311,202	)
Dividends to Series D Preferred Stockholders		—			—			—			—			—			(539,056	)		(539,056	)		—			(539,056	)
SPAC remeasurement of Class A shares		—			—			—			—			(101,767	)		—			(101,767	)		—			(101,767	)
Repurchase of Series A Common Stock, at cost		—			—			(10,411	)		(104	)		(30,625	)		—			(30,729	)		—			(30,729	)
Distributions in excess of contributions received		—			—			—			—			—			—			—			(2,355,942	)		(2,355,942	)
Balance, June 30, 2022		920,000		$	9,200			11,793,757		$	117,938		$	183,126,885		$	(135,754,642	)	$	47,499,381		$	9,116,371		$	56,615,752
Net (loss) income		—			—			—			—			—			(763,753	)		(763,753	)		1,114,928			351,175
Vesting of restricted stock		—			—			13,020			130			47,914			—			48,044			—			48,044
Dividends paid to Series A Common Stockholders		—			—			—			—			—			(247,627	)		(247,627	)		—			(247,627	)
Dividends to Series D Preferred Stockholders		—			—			—			—			—			(538,286	)		(538,286	)		—			(538,286	)
SPAC remeasurement of Class A shares		—			—			—			—			(609,920	)		—			(609,920	)		—			(609,920	)
Repurchase of Series A Common Stock, at cost		—			—			(151,194	)		(1,512	)		(245,455	)		—			(246,967	)		—			(246,967	)
Repurchase of Series D Preferred Stock, at cost		(3,939	)		(39	)		—			—			(84,347	)		—			(84,386	)					(84,386	)
Distributions in excess of contributions received		—			—			—			—			—			—			—			(1,198,346	)		(1,198,346	)
Balance, September 30, 2022		916,061		$	9,161			11,655,583		$	116,556		$	182,235,077		$	(137,304,308	)	$	45,056,486		$	9,032,953		$	54,089,439

See Notes to Condensed Consolidated Financial Statements

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Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	*For the Nine Months Ended September 30,*
	*2023*			*2022*
Cash flows from operating activities:
Net income	$	21,346,450		$	1,149,411
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,054,109			3,973,582
Stock compensation		828,193			861,837
Bad debt expense		27,729			11,116
Gain on sale of real estate assets, net		(2,294,574	)		(4,057,527	)
Gain on deconsolidation of SPAC investment		(40,321,483	)		—
Net change in Conduit fair value marketable securities		17,682,154			—
Net change in fair value marketable securities		(169,530	)		70,183
Net change in fair value SPAC Trust Account		(1,209,542	)		(811,687	)
Amortization of financing costs		263,863			180,250
Amortization of below-market leases		(3,731	)		(41,167	)
Straight-line rent adjustment		(280,619	)		(148,181	)
Changes in operating assets and liabilities:
Other assets		(92,877	)		585,984
Accounts payable and accrued liabilities		378,761			245,652
Accounts payable and accrued liabilities for the SPAC		652,577			316,128
Accrued real estate taxes		(373,343	)		(447,279	)
Net cash provided by operating activities		488,137			1,888,302
Cash flows from investing activities:
Real estate acquisitions		(13,715,923	)		(8,087,250	)
Additions to buildings and tenant improvements		(2,817,786	)		(1,939,712	)
Investment in marketable securities		(2,083,328	)		(1,243,672	)
Proceeds from sale of marketable securities		2,302,456			1,787,695
Investment of SPAC IPO proceeds into Trust Account		(624,998	)		(134,895,000	)
Withdrawals from Trust Account for SPAC taxes		832,480			—
Withdrawals from Trust Account for Redemption of SPAC Shares		137,157,011			—
Deletions / (additions) to deferred leasing costs		5,808			(53,377	)
Proceeds from sales of real estate, net		7,113,065			20,603,179
Net cash provided by (used in) investing activities		128,168,785			(123,828,137	)
Cash flows from financing activities:
Proceeds from mortgage notes payable, net of issuance costs		13,400,934			14,992,425
Repayment of mortgage notes payable		(7,885,953	)		(9,586,079	)
Payment of deferred offering costs		—			(3,201,266	)
Distributions to noncontrolling interests, net		(3,013,831	)		(3,812,698	)
Proceeds from initial public offering of SPAC		—			132,859,920
SPAC offering non-controlling interest adjustment		—			(609,920	)
Redemption of SPAC shares		(137,157,011	)		—
Repurchase of Series A Common Stock, at cost		—			(277,696	)
Repurchase of Series D Preferred Stock, at cost		(250,770	)		(84,386	)
Dividends paid to Series D Preferred Stockholders		(1,595,606	)		(1,616,398	)
Dividends paid to Series A Common Stockholders		(892,646	)		(2,857,081	)
Net cash (used in) provided by financing activities		(137,394,883	)		125,806,821
Net (decrease) increase in cash equivalents and restricted cash		(8,737,961	)		3,866,986
Cash, cash equivalents and restricted cash - beginning of period		16,516,725			14,702,089
Cash, cash equivalents and restricted cash - end of period	$	7,778,764		$	18,569,075
Supplemental disclosure of cash flow information:
Interest paid-mortgage notes payable	$	3,637,980		$	3,038,713
Non-cash financing activities:
Potentially convertible common stock for SPAC	$	—		$	134,895,000
Dividends payable - Common Stock Series A	$	302,495		$	—
Dividends payable - Preferred Stock Series D	$	175,758		$	178,916

See Notes to Condensed Consolidated Financial Statements

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Presidio Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

September 30, 2023

1. ORGANIZATION

Organization. Presidio Property Trust, Inc. (“we”, “our”, “us” or the “Company”) is an internally-managed real estate investment trust (“REIT”), with holdings in office, industrial, retail and model home properties. We were incorporated in the State of California on September 28, 1999, and in August 2010, we reincorporated as a Maryland corporation. In October 2017, we changed our name from “NetREIT, Inc.,” to “Presidio Property Trust, Inc.” Through Presidio Property Trust, Inc., its subsidiaries, and its partnerships, we own 12 commercial properties in fee interest, two of which we own as a partial interest in various affiliates, in which we serve as general partner, member and/or manager, and a special purpose acquisition company as noted below.

The Company or one of its affiliates operates the following partnerships during the periods covered by these condensed consolidated financial statements:

	•	The Company is the sole general partner and limited partner in two limited partnerships (NetREIT Palm Self-Storage LP and NetREIT Casa Grande LP), both of which, at September 30, 2023, had ownership interests in an entity that owns income producing real estate. The Company refers to these entities collectively as the "NetREIT Partnerships".

	•	The Company is the general and limited partner in five limited partnerships that purchase model homes and lease them back to homebuilders (Dubose Model Home Investors #202, LP, Dubose Model Home Investors #203, LP, Dubose Model Home Investors #204, LP, Dubose Model Home Investors #205, LP, and Dubose Model Home Investors #206, LP). The Company refers to these entities collectively as the “Model Home Partnerships”.

The Company has determined that the limited partnerships in which it owns less than 100% should be included in the Company’s consolidated financial statements as the Company directs their activities and has control of such limited partnerships.

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), for federal income tax purposes. To maintain our qualification as a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels, and diversity of stock ownership. Provided we maintain our qualification for taxation as a REIT, we are generally not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. If we fail to maintain our qualification as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, all our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. We are subject to certain state and local income taxes.

We, together with one of our entities, have elected to treat certain subsidiaries as a taxable REIT subsidiary (a “TRS”) for federal income tax purposes. Certain activities that we undertake must be conducted by a TRS, such as non-customary services for our tenants, and holding assets that we cannot hold directly. A TRS is subject to federal and state income taxes. The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any tax jurisdictions.

Liquidity. The Company's anticipated future sources of liquidity may include existing cash and cash equivalents, cash flows from operations, refinancing of existing mortgages, future real estate sales, new borrowings, and the sale of equity or debt securities. Future capital needs include paying down existing borrowings, maintaining our existing properties, funding tenant improvements, paying lease commissions (to the extent they are not covered by lender-held reserve deposits), and the payment of dividends to our stockholders. The Company is also seeking investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders. To ensure that we can effectively execute these objectives, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity. If necessary, the Company may seek other short-term liquidity alternatives, such as bridge loans, refinancing an unencumbered property or a bank line of credit depending on the credit environment.

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Short-term liquidity needs include paying our current operating costs, satisfying the debt service requirements of existing mortgages, completing tenant improvements, paying leasing commissions, and funding dividends to stockholders. Future principal payments due on mortgage notes payables, during the fourth quarter of 2023, total approximately $3.4 million, of which $3.1 million is related to model home properties. Management expects certain model home properties can be sold, and that the underlying mortgage notes will be paid off with sales proceeds while other mortgage notes can be refinanced, as the Company has historically been able to do in the past. Additional principal payments will be made with cash flows from ongoing operations.

As the Company continues its operations, it may re-finance or seek additional financing. However, there can be no assurance that any such re-financing or additional financing will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it will most likely be required to reduce its plans and/or certain discretionary spending, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives. Management believes that the combination of working capital on hand and the ability to refinance commercial and model home mortgages will fund operations through at least the next twelve months from the date of the issuance of these unaudited interim financial statements.

The Company served as the sponsor of the former special purpose acquisition company Murphy Canyon Acquisition Corp. ("Murphy Canyon" or the “SPAC”) since its creation in October 2021 and certain officers and directors of the Company also served as officers and directors of the SPAC. On September 22, 2023, Murphy Canyon completed its business combination with Conduit Pharmaceuticals Limited (“Conduit Pharma”) and changed its name to Conduit Pharmaceuticals Inc. (“Conduit”). Immediately prior to the business combination the Company owned approximately 65% of the SPAC’s outstanding common stock. Upon consummation of the business combination, the SPAC’s shares of Class B common stock were converted into shares of its Class A common stock and the shares of Class A common stock were then reclassified as a single class of Conduit common stock. As a result of the business combination, the Company was issued (i) 3,306,250 shares of Conduit’s common stock due to the conversion of the shares of the SPAC’s Class B common stock into shares of the SPAC’s Class A common stock and then reclassification into shares of Conduit common stock, (ii) 754,000 shares of Conduit common stock, which prior to the business combination were shares of the SPAC’s Class A common stock and (iii) private warrants to purchase 754,000 shares of Conduit common stock, which prior to the business combination were warrants to purchase 754,000 shares of the SPAC’s Class A common stock. Also in the business combination, shareholders and debtholders of Conduit Pharma were issued 65,000,000 shares of Conduit common stock. Immediately following the consummation of the business combination, the Company transferred 45,000 shares of Conduit common stock and warrants to purchase 45,000 shares of Conduit common stock to the SPAC’s independent directors as compensation for their services. As a result, the Company owned approximately 6.5% of Conduit as of September 30, 2023. In connection with the business combination, the Company’s officers and directors who also served as officers and directors of the SPAC resigned from the SPAC, with the exception of the Company’s former Chief Financial Officer who resigned from the Company.

2. SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2022. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2023.

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information and footnote disclosures required for annual consolidated financial statements have been condensed or excluded pursuant to rules and regulations of the SEC. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of our financial position as of September 30, 2023, and December 31, 2022, as well as results of our operations, and cash flows as of, and for the three and nine months ended September 30, 2023 and 2022, respectively. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, due to real estate market fluctuations, available mortgage lending rates and other unknown factors. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements included in the Form 10-K filed with the SEC on March 28, 2023.

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Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Presidio Property Trust, Inc. and its subsidiaries, NetREIT Advisors, LLC and Dubose Advisors LLC (collectively, the “Advisors”), and NetREIT Dubose Model Home REIT, Inc. The consolidated financial statements also include the results of the NetREIT Partnerships and the Model Home Partnerships. As used herein, references to the “Company” include references to Presidio Property Trust, Inc., its subsidiaries, and the partnerships. All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements also include the accounts of (a) Murphy Canyon up until September 22, 2023. Murphy Canyon was a SPAC for which we served as the financial sponsor (as described herein), and which was deemed to be controlled by us as a result of our 65% equity ownership stake, the overlap of three of our executive officers as executive officers of Murphy Canyon, and significant influence that we could exercise over the funding and acquisition of new operations for an initial business combination ("IBC") (see Note 2, Variable Interest Entity). All intercompany balances, prior to deconsolidation and loss of control on September 22, 2023, have been eliminated in consolidation.

The Company classifies the noncontrolling interests in the NetREIT Partnerships as part of consolidated net (loss) income in 2023 and 2022 and has included the accumulated amount of noncontrolling interests as part of equity since inception in February 2010. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interest will be remeasured, with the gain or loss reported in the consolidated statements of operations. Management has evaluated the noncontrolling interests and determined that they do not contain any redemption features.

Use of Estimates. The consolidated financial statements were prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Real Estate Assets and Lease Intangibles. Land, buildings and improvements are recorded at cost, including tenant improvements and lease acquisition costs (including leasing commissions, space planning fees, and legal fees). The Company capitalizes any expenditure that replaces, improves, or otherwise extends the economic life of an asset, while ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of acquired properties between the acquired tangible assets and liabilities (consisting of land, buildings, tenant improvements, and long-term debt) and identified intangible assets and liabilities (including the value of above-market and below-market leases, the value of in-place leases, unamortized lease origination costs and tenant relationships), in each case based on their respective fair values.

The Company allocates the purchase price to tangible assets of an acquired property based on the estimated fair values of those tangible assets, assuming the property was vacant. Estimates of fair value for land, building and building improvements are based on many factors, including, but not limited to, comparisons to other properties sold in the same geographic area and independent third-party valuations. In estimating the fair values of the tangible assets, intangible assets, and liabilities acquired, the Company also considers information obtained about each property as a result of its pre‑acquisition due diligence, marketing and leasing activities.

The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease. Characteristics considered by management in allocating these values include, but are not limited, to the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease, the tenant’s credit quality, and other factors.

The value attributable to the above-market or below-market component of an acquired in-place lease is determined based upon the present value (using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of rents that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above or below-market leases are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases. Amortization of above and below-market rents resulted in a net increase in rental income of approximately $1,200 and $3,700 for the three and nine months ended September 30, 2023. Amortization of above and below-market rents resulted in a net increase in rental income of approximately $14,000 and $41,000 for the three and nine months ended September 30, 2022.

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The value of in-place leases and unamortized lease origination costs are amortized to expenses over the remaining term of the respective leases, which range from less than a year to ten years. The amount allocated to acquired in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amount allocated to unamortized lease origination costs is determined by what the Company would have paid to a third-party to secure a new tenant reduced by the expired term of the respective lease. The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease. Amortization expense related to these assets was approximately $4,300 and $13,100 for the three and nine months ended September 30, 2023. Amortization expenses related to these assets was approximately $50,000 and $152,300 for the three and nine months ended September 30, 2022.

Deferred Leasing Costs. Costs incurred in connection with successful property leases are capitalized as deferred leasing costs and amortized to leasing commission expense on a straight-line basis over the terms of the related leases which generally range from one to five years. Deferred leasing costs consist of third-party leasing commissions. Management re-evaluates the remaining useful lives of leasing costs as the creditworthiness of the tenants and economic and market conditions change. If management determines the estimated remaining life of the respective lease has changed, the amortization period is adjusted. At September 30, 2023 and December 31, 2022, the Company had net deferred leasing costs of approximately $

Presidio Property Trust, Inc. [SQFT] Filings
Presidio Property Trust, Inc. [SQFTP] Filings
Presidio Property Trust, Inc. [SQFTW] Filings
10-Q	[2023-11-14]
10-Q	[2023-08-14]
10-Q	[2023-05-15]
10-K	[2023-03-28]
10-Q	[2022-11-10]
10-Q	[2022-08-11]
10-Q	[2022-05-16]
10-K	[2022-03-30]
10-Q	[2021-11-12]
10-Q	[2021-08-10]
10-Q	[2021-05-10]
10-K	[2021-03-30]
10-Q	[2020-11-05]
10-Q	[2020-08-12]
10-Q	[2020-05-15]
10-K	[2020-03-13]
10-Q	[2019-11-12]
10-Q	[2019-08-19]
10-Q	[2019-05-13]
10-K	[2019-03-25]
10-Q	[2018-11-14]
10-Q	[2018-08-09]
10-Q	[2018-05-11]
10-K	[2018-03-20]
10-Q	[2017-11-08]
10-Q	[2017-08-11]
10-Q	[2017-05-11]
10-K	[2017-03-17]
10-Q	[2016-11-09]
10-Q	[2016-08-09]
10-Q	[2016-05-12]
10-K	[2016-03-18]
10-Q	[2015-11-13]
10-Q	[2015-08-13]
10-Q	[2015-05-14]
10-K	[2015-03-31]
10-Q	[2014-11-14]
10-Q	[2014-08-13]
10-Q	[2014-05-15]
10-K	[2014-03-31]
10-Q	[2013-11-14]
10-Q	[2013-08-12]
10-Q	[2013-05-15]
10-K	[2013-03-28]
10-Q	[2012-11-09]
10-Q	[2012-08-14]
10-Q	[2012-05-10]
10-K	[2012-03-28]

Presidio Property Trust, Inc. [SQFT] Filings

Presidio Property Trust, Inc. [SQFTP] Filings

Presidio Property Trust, Inc. [SQFTW] Filings