Company Quick10K Filing
Quick10K
Presidio Property Trust
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-17 Enter Agreement, Leave Agreement, Off-BS Arrangement, Shareholder Rights, Exhibits
8-K 2019-08-02 Officers
8-K 2019-08-01 Off-BS Arrangement
8-K 2019-07-24 Shareholder Vote
8-K 2019-05-23 Shareholder Vote, Other Events
8-K 2019-05-10 Other Events
8-K 2019-01-10 Other Events, Exhibits
8-K 2019-01-07 Officers
8-K 2018-12-20 Other Events
8-K 2018-12-07 Other Events
8-K 2018-11-27 Officers
8-K 2018-07-10 Shareholder Vote
8-K 2018-01-11 Officers
8-K 2017-12-31 Officers
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PALA Palayan Resources 0
SQFT 2019-06-30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 sqft-ex311_8.htm
EX-31.2 sqft-ex312_6.htm
EX-31.3 sqft-ex313_9.htm
EX-32.1 sqft-ex321_7.htm

Presidio Property Trust Earnings 2019-06-30

SQFT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sqft-10q_20190630.htm 10-Q sqft-10q_20190630.htm

 

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 June 30, 2019

OR

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

For the period from _____ to _____

000-53673

(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 class of registered securities

Trading symbol

Name of exchange on which registered

None

N/A

N/A

 

 

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 August 19, 2019, registrant had issued and outstanding 17,708,523 shares of its Series A common stock, $0.01 par value.

 

 

 


Index

 

 

 

Page

 

 

 

Part I. FINANCIAL INFORMATION:

 

 

 

 

 

Item 1. FINANCIAL STATEMENTS:

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

 

4

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018  (unaudited)

 

5

 

Condensed Consolidated Statement of Changes in Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)

 

6

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)

 

7

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

21

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

30

Item 4. Controls and Procedures

 

30

 

 

 

Part II. OTHER INFORMATION

 

30

 

 

 

 

Item 1. Legal Proceedings

 

30

 

Item 1A. Risk Factors

 

30

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

Item 3. Defaults Upon Senior Securities

 

30

 

Item 4. Mine Safety Disclosures

 

30

 

Item 5. Other Information

 

30

 

Item 6. Exhibits

 

31

 

 

 

 

 

Signatures

 

32

 

 

 

2


CAUTIONARY 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. 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:

 

 

adverse economic conditions in the real estate market and overall financial market fluctuations;

 

 

adverse changes in the real estate and capital financing markets;

 

 

inability to redeem or retire our Series B Preferred Stock;

 

 

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

 

 

insufficient cash to pay or restrictions on paying dividends to our stockholders;

 

 

unexpected costs and/or increases in our operating costs;

 

 

inability to attract or retain qualified personnel, including real estate management personnel;

 

 

adverse results of any legal proceedings;

 

 

inability to compete effectively;

 

 

inability to collect rent from tenants and/or defaults on leases by tenants;

 

 

early termination or non-renewal of leases by tenants;

 

 

increased interest rates, particularly with respect to Series B Preferred Stock;

 

 

lower than expected rents and revenues from our properties and/or increased vacancy rates;

 

 

inability to complete real estate acquisitions or dispositions on favorable terms and/or without significant defeasance cost;

 

 

failure to manage or operate properties efficiently and effectively;

 

 

changes in our business strategy;

 

 

failure to generate sufficient cash flows to service our outstanding indebtedness;

 

 

failure or inability to implement the recapitalization;

 

 

environmental uncertainties, risks and cost related to adverse weather conditions and natural disasters (resulting in uninsured and underinsured losses), and compliance with any environmental requirements;

 

 

failure to qualify and maintain our status as a REIT;

 

 

government approvals, actions and initiatives, including compliance with American with Disabilities Act of 1990 (ADA);

 

 

new legislation or unexpected interpretations of existing legislation;

 

 

adverse changes in real estate and zoning laws, increases in real property tax rates, and adverse rulings with respect to tax-deferred exchanges; and

 

 

additional factors discussed in our filings with the SEC.

 

3


Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Real estate assets and lease intangibles:

 

 

 

 

 

 

 

 

Land

 

$

29,906,354

 

 

$

29,850,681

 

Buildings and improvements

 

 

150,703,421

 

 

 

152,642,115

 

Tenant improvements

 

 

17,143,107

 

 

 

15,457,302

 

Lease intangibles

 

 

6,382,637

 

 

 

6,552,142

 

Real estate assets and lease intangibles held for investment, cost

 

 

204,135,519

 

 

 

204,502,240

 

Accumulated depreciation and amortization

 

 

(34,237,272

)

 

 

(31,732,241

)

Real estate assets and lease intangibles held for investment, net

 

 

169,898,247

 

 

 

172,769,999

 

Real estate assets held for sale, net

 

 

35,827,398

 

 

 

38,338,066

 

Real estate assets, net

 

 

205,725,645

 

 

 

211,108,065

 

Cash equivalents and restricted cash

 

 

11,652,864

 

 

 

9,776,215

 

Deferred leasing costs, net

 

 

2,185,514

 

 

 

2,096,553

 

Goodwill

 

 

2,423,000

 

 

 

2,423,000

 

Other assets, net

 

 

5,741,653

 

 

 

7,646,207

 

TOTAL ASSETS

 

$

227,728,676

 

 

$

233,050,040

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgage notes payable, net

 

$

121,423,081

 

 

$

123,039,215

 

Mortgage notes payable related to properties held for sale, net

 

 

26,681,682

 

 

 

26,674,961

 

Mortgage notes payable, total net

 

 

148,104,763

 

 

 

149,714,176

 

Accounts payable and accrued liabilities

 

 

6,937,212

 

 

 

5,751,245

 

Accrued real estate taxes

 

 

1,522,889

 

 

 

3,094,380

 

Dividends payable

 

 

1,082,947

 

 

 

1,075,371

 

Lease liability, net

 

 

613,074

 

 

 

-

 

Below-market leases, net

 

 

401,386

 

 

 

495,927

 

Mandatorily redeemable Series B Preferred Stock, net, $0.01 par value, $1,000

   liquidating preference; shares authorized: 40,000; 16,000 and 16,900 shares issued and

   outstanding at June 30, 2019 and December 31, 2018, respectively, net

 

 

16,000,000

 

 

 

16,777,898

 

Total liabilities

 

 

174,662,271

 

 

 

176,908,997

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Series A Common Stock, $0.01 par value, shares authorized: 100,000,000; 17,715,778 and 17,721,422 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

177,159

 

 

 

177,216

 

Additional paid-in capital

 

 

151,692,674

 

 

 

151,582,017

 

Dividends and accumulated losses

 

 

(115,414,927

)

 

 

(111,343,840

)

Total stockholders' equity before noncontrolling interest

 

 

36,454,906

 

 

 

40,415,393

 

Noncontrolling interest

 

 

16,611,499

 

 

 

15,725,650

 

Total equity

 

 

53,066,405

 

 

 

56,141,043

 

TOTAL LIABILITIES AND EQUITY

 

$

227,728,676

 

 

$

233,050,040

 

 

See Notes to Condensed Consolidated Financial Statements

 

4


Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

6,799,575

 

 

$

7,843,654

 

 

$

13,694,755

 

 

$

15,789,760

 

Fees and other income

 

 

321,412

 

 

 

320,762

 

 

 

605,496

 

 

 

599,490

 

Total revenue

 

 

7,120,987

 

 

 

8,164,416

 

 

 

14,300,251

 

 

 

16,389,250

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental operating costs

 

 

2,526,002

 

 

 

2,662,223

 

 

 

5,289,552

 

 

 

5,312,132

 

General and administrative

 

 

1,419,668

 

 

 

1,357,578

 

 

 

3,180,371

 

 

 

2,692,672

 

Depreciation and amortization

 

 

1,749,113

 

 

 

2,265,889

 

 

 

3,959,194

 

 

 

4,604,933

 

Total costs and expenses

 

 

5,694,783

 

 

 

6,285,690

 

 

 

12,429,117

 

 

 

12,609,737

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense-Series B preferred stock

 

 

(627,273

)

 

 

(1,105,626

)

 

 

(1,275,724

)

 

 

(2,199,314

)

Interest expense-mortgage notes

 

 

(1,864,597

)

 

 

(2,041,553

)

 

 

(3,761,349

)

 

 

(4,024,842

)

Interest and other income (expense), net

 

 

4,409

 

 

 

12,449

 

 

 

9,933

 

 

 

(5,842

)

Gain on sales of real estate, net

 

 

176,392

 

 

 

355,276

 

 

 

1,390,634

 

 

 

429,489

 

Deferred offering costs

 

 

-

 

 

 

(1,507,599

)

 

 

-

 

 

 

(1,507,599

)

Income tax expense

 

 

(191,809

)

 

 

(88,671

)

 

 

(273,239

)

 

 

(119,465

)

Total other expense, net

 

 

(2,502,878

)

 

 

(4,375,724

)

 

 

(3,909,745

)

 

 

(7,427,573

)

Net loss

 

 

(1,076,674

)

 

 

(2,496,998

)

 

 

(2,038,611

)

 

 

(3,648,060

)

Less: Income attributable to noncontrolling interests

 

 

(182,924

)

 

 

(400,762

)

 

 

(949,379

)

 

 

(567,892

)

Net loss attributable to Presidio Property Trust, Inc.

   common stockholders

 

$

(1,259,598

)

 

$

(2,897,760

)

 

$

(2,987,990

)

 

$

(4,215,952

)

Basic and diluted loss per common share

 

$

(0.07

)

 

$

(0.16

)

 

$

(0.17

)

 

$

(0.24

)

Weighted average number of common shares

   outstanding - basic and diluted

 

 

17,715,778

 

 

 

17,667,857

 

 

 

17,724,812

 

 

 

17,564,805

 

 

See Notes to Condensed Consolidated Financial Statements

5


Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Equity

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Dividends and

 

 

Total

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Losses

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance, December 31, 2018

 

 

17,721,422

 

 

$

177,216

 

 

$

151,582,017

 

 

$

(111,343,840

)

 

$

40,415,393

 

 

$

15,725,650

 

 

$

56,141,043

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,728,392

)

 

 

(1,728,392

)

 

 

766,455

 

 

 

(961,937

)

Dividends paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(150

)

 

 

(150

)

 

 

-

 

 

 

(150

)

Contributions received from noncontrolling interests,

   net of distributions paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(258,708

)

 

 

(258,708

)

Repurchase of common stock

 

 

(14,322

)

 

 

(143

)

 

 

(52,006

)

 

 

 

 

 

 

(52,149

)

 

 

-

 

 

 

(52,149

)

Vesting of restricted stock

 

 

26,847

 

 

 

268

 

 

 

230,615

 

 

 

-

 

 

 

230,883

 

 

 

-

 

 

 

230,883

 

Balance, March 31, 2019

 

 

17,733,947

 

 

$

177,341

 

 

$

151,760,626

 

 

$

(113,072,382

)

 

$

38,865,585

 

 

$

16,233,397

 

 

$

55,098,982

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,259,598

)

 

 

(1,259,598

)

 

 

182,924

 

 

 

(1,076,674

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,082,947

)

 

 

(1,082,947

)

 

 

-

 

 

 

(1,082,947

)

Contributions received from noncontrolling interests,

   net of distributions paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

195,178

 

 

 

195,178

 

Repurchase of common stock

 

 

(18,169

)

 

 

(182

)

 

 

(67,952

)

 

 

 

 

 

 

(68,134

)

 

 

-

 

 

 

(68,134

)

Balance, June 30, 2019

 

 

17,715,778

 

 

$

177,159

 

 

$

151,692,674

 

 

$

(115,414,927

)

 

$

36,454,906

 

 

$

16,611,499

 

 

$

53,066,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Dividends and

 

 

Total

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Losses

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance, December 31, 2017

 

 

17,667,857

 

 

$

176,680

 

 

$

151,121,902

 

 

$

(113,652,763

)

 

$

37,645,819

 

 

$

14,396,349

 

 

$

52,042,168

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,318,191

)

 

 

(1,318,191

)

 

 

167,130

 

 

 

(1,151,061

)

Contributions received from noncontrolling interests,

   net of distributions paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,017,739

 

 

 

1,017,739

 

Balance, March 31, 2018

 

 

17,667,857

 

 

$

176,680

 

 

$

151,121,902

 

 

$

(114,970,954

)

 

$

36,327,628

 

 

$

15,581,218

 

 

$

51,908,846

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,897,760

)

 

 

(2,897,760

)

 

 

400,762

 

 

 

(2,496,998

)

Contributions received from noncontrolling interests,

   net of distributions paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

159,770

 

 

 

159,770

 

Balance, June 30, 2018

 

 

17,667,857

 

 

$

176,680

 

 

$

151,121,902

 

 

$

(117,868,714

)

 

$

33,429,868

 

 

$

16,141,750

 

 

$

49,571,618

 

 

See Notes to Condensed Consolidated Financial Statements

6


Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the

 

 

For the

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,038,611

)

 

$

(3,648,060

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,959,194

 

 

 

4,604,933

 

Stock compensation

 

 

635,758

 

 

 

286,182

 

Bad debt expense

 

 

19,088

 

 

 

26,661

 

Gain on sale of real estate assets, net

 

 

(1,390,634

)

 

 

(429,489

)

Amortization of financing costs

 

 

400,131

 

 

 

272,989

 

Amortization of above-market leases

 

 

30,125

 

 

 

37,401

 

Amortization of  below-market leases

 

 

(94,541

)

 

 

(123,120

)

Straight-line rent adjustment

 

 

(9,267

)

 

 

(249,065

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Other assets

 

 

947,911

 

 

 

1,190,605

 

Accounts payable and accrued liabilities

 

 

1,525,219

 

 

 

251,331

 

Accrued real estate taxes

 

 

(1,571,491

)

 

 

(1,500,066

)

Net cash provided by operating activities

 

 

2,412,882

 

 

 

720,302

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Real estate acquisitions

 

 

(6,116,035

)

 

 

(10,196,098

)

Additions to buildings and tenant improvements

 

 

(4,660,917

)

 

 

(1,808,140

)

Additions to deferred leasing costs

 

 

(661,401

)

 

 

(348,579

)

Proceeds from sales of real estate, net

 

 

14,848,959

 

 

 

4,215,867

 

Net cash provided by (used in) investing activities

 

 

3,410,606

 

 

 

(8,136,950

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from mortgage notes payable, net of issuance costs

 

 

9,151,851

 

 

 

18,169,709

 

Repayment of mortgage notes payable

 

 

(10,939,681

)

 

 

(7,790,196

)

Redemption of mandatorily redeemable preferred stock

 

 

(900,000

)

 

 

-

 

Contributions from noncontrolling interests net of distributions paid

 

 

(63,530

)

 

 

1,177,510

 

Repurchase of common stock

 

 

(119,958

)

 

 

-

 

Dividends paid to stockholders

 

 

(1,075,521

)

 

 

-

 

Net cash (used in) provided by financing activities

 

 

(3,946,839

)

 

 

11,557,023

 

Net increase in cash equivalents and restricted cash

 

 

1,876,649

 

 

 

4,140,375

 

Cash equivalents and restricted cash - beginning of period

 

 

9,776,215

 

 

 

8,310,575

 

Cash equivalents and restricted cash - end of period

 

$

11,652,864

 

 

$

12,450,950

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid Series B preferred stock

 

$

1,146,872

 

 

$

2,160,939

 

Interest paid-mortgage notes payable

 

$

3,072,901

 

 

$

3,795,201

 

 

See Notes to Condensed Consolidated Financial Statements

7


Presidio Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2019

 

 

1. ORGANIZATION

Organization. Presidio Property Trust, Inc. (“we”, “our”, “us” or the “Company”) is a self-managed real estate investment trust (“REIT”). 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.” The Company’s portfolio includes the following properties:

 

Thirteen office buildings and one industrial property (“Office/Industrial Properties”) which total approximately 1,273,788 rentable square feet;

 

Four retail shopping centers (“Retail Properties”) which total approximately 131,722 rentable square feet; and

 

136 model home residential properties (“Model Homes”) leased back to homebuilders that are owned by five affiliated limited partnerships and one wholly-owned corporation (“Model Home Properties”).

The Company operates in the following partnerships during the periods covered by these condensed consolidated financial statements:

 

The Company is the sole general partner in two limited partnerships (NetREIT Palm Self-Storage LP and NetREIT Casa Grande LP), all with ownership interest in real estate income producing properties.

 

The Company is the general and/ or 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 Homes Investor #205, LP and NetREIT Dubose Model Home REIT, 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 (“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 of 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 our 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 major tax jurisdictions.

Liquidity. The Company’s 16,000 shares of its Series B Preferred Stock are mandatorily redeemable by the Company on August 1, 2019 (“Mandatory Redemption Date”) for $16.0 million in cash. On August 2, 2019, the Company received a notice from PFP III Sub II, LLC (“Prime”), the sole holder of the Company’s Series B Preferred Stock, that an event of default occurred when the Company failed to redeem the Series B Preferred Stock on its Mandatory Redemption Date pursuant to the terms of the Investor Agreement dated August 4, 2014 and the corresponding Articles Supplementary.  This event of default triggered an annual cash dividend payable per share equal to 24% of the liquidation preference of $1,000 per share, effective as of the Mandatory Redemption Date.

 

8


Prime demanded immediate payment of all amounts due and reiterated the Company’s recourse obligation for costs and expenses in connection with Prime’s enforcement of its rights and remedies.  Prime has not waived the event of default and has expressly reserved its rights and remedies.  Prime has certain rights and remedies following the occurrence and during the continuation of an event of default and additional rights and remedies that commence on the Mandatory Redemption Date.  Subject to certain limitations under certain agreements (including mortgage loan documents), the Maryland General Corporation Law and/or the Company’s charter, Prime’s right to take unilateral action to, or cause the Company to, among other rights, include the following:

 

Replace property managers and leasing agents;

 

Terminate contracts between the Company and/or any of its subsidiaries and any affiliate of the Company to the extent that such contracts relate to the ownership, leasing, management, or use of the Company’s real property:

 

Replace any managing member or general partner;

 

Following 180 days after the Mandatory Redemption Date, sell any real property;

 

Sell any property (in addition to real property);

 

Implement Major Decisions (as defined in the Investor Agreement), including the suspension of dividend payments to common stockholders;

 

Refinance, repay or prepay any indebtedness, including existing mortgage loans secured by real property;

 

Cure any default under any indebtedness, including mortgages; and

 

Elect six individuals to serve as members of the Board of Directors of the Company.

 

Except for the annual cash dividend rate of 24%, which is 10% in excess of the 14% dividend rate that the Company had been accruing and paying, the Company has not received any notice or other communication from Prime that it intends to exercise any of the rights or remedies available to it in connection with the event of default.  The exercise of additional rights and remedies by Prime, including its right to replace a majority of the Company’s board of directors (and, in effect, take control of the Company) and its right to sell real property, may have a material adverse effect on the Company, including its business, results of operations, cash flows, and financial condition.  

 

The foregoing descriptions of Prime’s rights and remedies and the Company’s recourse obligations in an event of default are only summaries and are qualified in their entirety by reference to the Investor Agreement and Articles Supplementary (which designates the preferences, powers, rights and other terms of the Series B Preferred Stock), copies of which were filed as exhibits to the Form 8-K filed on August 8, 2014.

On August 14, 2019, the Company redeemed 2,000 shares of its Series B Preferred Stock for $2.0 million and 14,000 shares of Series B Preferred Stock remaining outstanding.  

 

The Company is pursuing financing alternatives to redeem the outstanding shares of Series B Preferred Stock, and the Company expects such financing and redemption to be completed before the end of the Company’s third fiscal quarter, September 30, 2019.  The Company also continues to review its portfolio of real property to determine which properties to sell in order to generate sufficient net proceeds to redeem its Series B Preferred Stock.  However, there is no guarantee that the Company will be able to obtain the financing necessary to redeem any or all Series B Preferred Stock outstanding or sell real property on terms favorable to the Company or on any terms.

 

For the six months remaining in 2019 and the year ending December 31, 2020, we have $5.2 million and $11.5 million of mortgage notes payable maturing, respectively, related to the model home properties. We plan to sell the model home properties or refinance a significant portion of the mortgage notes payable to repay the mortgage notes payable.  

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, 2018. 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, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2019.

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 statement and the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information and footnote disclosures

9


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, results of our operations, and cash flows as of and for the six months ended June 30, 2019 and 2018, 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, 2019. 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, 2018. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements included in the Form 10-K filed with the SEC on March 22, 2019.

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries and entities the Company controls or of which it is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the allocation of purchase price paid for property acquisitions among land, building and intangible assets acquired including their useful lives; valuation of long-lived assets, and the allowance for doubtful accounts, which is based on an evaluation of the tenants’ ability to pay. Actual results may differ from those estimates.

Cash Equivalents and Restricted Cash. At June 30, 2019 and December 31, 2018, we had approximately $5.1 million and $5.8 million in cash equivalents, respectively and $6.6 million and $4.0 million of restricted cash, respectively.  Our cash equivalents and restricted cash consist of invested cash and cash in our operating accounts and are held in bank accounts at third party institutions. Restricted cash consists of funds used for property taxes, insurance, capital expenditures and leasing commissions.

Real Estate Held for Sale. Real estate held for sale during the current period is classified as “real estate held for sale” for all prior periods presented in the accompanying condensed consolidated financial statements. Mortgage notes payable related to the real estate held for sale during the current period is classified as “mortgage notes payable related to real estate held for sale, net” for all prior periods presented in the accompanying condensed consolidated financial statements. As of June 30, 2019, four properties meet the criteria to be classified as held for sale which are World Plaza, The Presidio, Union Terrace and Centennial Tech Center.

 

Impairments of Real Estate Asset. We review for impairment on a property by property basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Since our properties typically have a long life, the assumptions used to estimate the future recoverability of book value requires significant management judgment. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income because recording an impairment charge results in a negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.

 

Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. Although our strategy is to hold our properties over the long-term, if our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to fair value and such loss could be material.

During the six months ended June 30, 2019, the Company determined that no impairment existed, and no impairment charge was recorded for the six months ended June 30, 2019.  

 

10


Fair Value Measurements.  Under GAAP, we are required to measure certain financial instruments at fair value on a recurring basis. In addition, we are required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

 

Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

 

Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

 

Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

When available, we utilize quoted market prices from independent third-party sources to determine fair value and classify such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require us to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When we determine the market for a financial instrument owned by us to be illiquid or when market transactions for similar instruments do not appear orderly, we use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establish a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of a liability in circumstances in which a quoted price in an active market for an identical liability is not available, we measure fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.

 

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

 

Reclassifications. Certain reclassifications have been made to the previously presented consolidated financial statements and condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on previously reported results of consolidated operations or equity.

Subsequent Events. We evaluate subsequent events up until the date the consolidated financial statements are issued.

Exchange and Disposition Transactions

On July 1, 2019, NetREIT Genesis, LLC sold a 43% tenants-in-common interest in Genesis Plaza (“TIC Interest”) for $5.6 million to a newly formed entity, NetREIT Genesis II, LLC, in which NetREIT Casa Grande LP is the sole member. NetREIT Casa Grande LP owned and sold Morena Office Center on January 15, 2019. The sale of the TIC Interest was structured as a 1031 exchange and included $2.9 million in cash and assumption of debt. The Company remains a guarantor of the debt and NetREIT Genesis, LLC and NetREIT Genesis II, LLC are jointly and severally liable for the debt securing Genesis Plaza, the financial terms and conditions of which remain materially unchanged.

On July 31, 2019, we sold The Presidio office building for approximately $12.3 million and recognized a gain of $4.5 million.

Default Upon Senior Securities; Partial Redemption of Series B Preferred Stock

The Company’s 16,000 shares of its Series B Preferred Stock are mandatorily redeemable by the Company on August 1, 2019 for $16.0 million in cash. On August 2, 2019, the Company received a notice from PFP III Sub II, LLC, the sole holder of the Company’s Series B Preferred Stock, that an event of default occurred when the Company failed to redeem the Series B Preferred Stock on its maturity date, August 1, 2019.  This event of default triggered an annual cash dividend payable per share equal to 24% of the liquidation preference of $1,000 per share, effective as of August 1, 2019. Prime demanded immediate payment of all amounts due and reiterated the Company’s recourse obligation for costs and expenses in connection with Prime’s enforcement of its rights and remedies. See additional discussion regarding the Series B Mandatorily Redeemable Preferred Stock in footnote 9.

11


On August 14, 2019, the Company redeemed 2,000 shares of its Series B Preferred Stock for $2.0 million and 14,000 shares of Series B Preferred Stock remaining outstanding.  

Recently Issued Accounting Pronouncements.  In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which amended the existing accounting standards for lease accounting to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet.

 

We adopted the standard effective January 1, 2019 and have elected to use January 1, 2019 as our date of initial application. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for periods presented before January 1, 2019 as these prior periods conform to the Accounting Standards Codification 840. We elected the package of practical expedients permitted under the transition guidance within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously capitalized as initial direct costs. We evaluated all leases within this scope under existing accounting standards and under the new ASU lease standard recognized approximately $514,000 of right-of-use assets and lease liabilities upon adoption and for the three months ended June 30, 3019 we recorded additional right-of-use assets and liabilities of approximately $147,000 for a total balance of $661,000 as of June 30, 2019.

 

As a lessor, our rental revenue remained mainly consistent with previous guidance, apart from the narrower definition of initial direct costs that can be capitalized. The new standard defines initial direct costs as only the incremental costs of signing a lease. As such, certain compensation and certain external legal fees related to the execution of successful lease agreements no longer meet the definition of initial direct costs under the new standard and will be accounted for in the line item General and Administrative Expense. However, the adoption of the standard, along with the adoption of ASU No. 2018-11, Leases - Targeted Improvements which the FASB issued in July 2018, did change our presentation of our results from operations in the Consolidated Statements of Operations. The main changes caused by the adoption of the standards are:

 

The new standard provided a practical expedient, which allows lessors to combine non-lease components with the related lease components if both the timing and pattern of transfer are the same for the non-lease components(s) and the related lease components, and the lease components would be classified as an operating lease. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. We elected the practical expedient to combine our lease and non-lease components that meet the defined criteria. The non-lease components of our leases primarily consist of common area maintenance reimbursements from our tenants.

 

The new standard requires our expected credit loss related to the collectability of lease receivables to be reflected as an adjustment to the line item Rental Income. For the six months ended June 30, 2019, the credit loss related to the collectability of lease receivables was recognized in the line item Rental Operating Expense and was not significant.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 is effective for periods beginning after December 15, 2019, with adoption permitted for fiscal years beginning after December 15, 2018. Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings. The Company is currently evaluating the impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2020. Early adoption is permitted but not earlier than the adoption of Topic 606. The Company does not believe that this guidance will have a material effect on its consolidated financial statements as it has not historically issued share-based payments to nonemployees in exchange for goods or services to be consumed within its operations.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019 with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.  

12


3. RECENT REAL ESTATE TRANSACTIONS

During the six months ended June 30, 2019, the Company disposed of the following properties:

 

Morena Office Center was sold on January 15, 2019 for approximately $5.6 million and recognized a gain of approximately $700,000.

 

Nightingale land was sold on May 8, 2019 for approximately $875,000 and recognized a loss of approximately $93,000.      

During the six months ended June 30, 2019, the Company acquired 18 model homes for approximately $6.1 million. The purchase price was paid through cash payments of approximately $1.8 million and mortgage notes of approximately $4.3 million.

During the six months ended June 30, 2019, the Company disposed of 26 model homes for approximately $9.4 million and recognized a gain of approximately $783,000.

During the six months ended June 30, 2018, the Company acquired 26 model homes for approximately $10.2 million. The purchase price was paid through cash payments of approximately $3.1 million and mortgage notes of approximately $7.1 million.

During the six months ended June 30, 2018, the Company disposed of 13 model homes for approximately $4.6 million and recognized a gain of approximately $429,000.  

 

4. REAL ESTATE ASSETS

A summary of the properties owned by the Company as of June 30, 2019 is as follows:

 

 

 

 

 

 

 

Real estate

 

 

 

Date

 

 

 

assets, net

 

Property Name

 

Acquired

 

Location

 

(in thousands)

 

Garden Gateway Plaza

 

March 2007

 

Colorado Springs, Colorado

 

$

11,312

 

World Plaza (1)

 

September 2007

 

San Bernardino, California

 

 

8,329

 

Executive Office Park

 

July 2008

 

Colorado Springs, Colorado

 

 

7,858

 

Waterman Plaza

 

August 2008

 

San Bernardino, California

 

 

4,933

 

Genesis Plaza

 

August 2010

 

San Diego, California

 

 

8,946

 

Dakota Center

 

May 2011

 

Fargo, North Dakota

 

 

8,951

 

The Presidio (1)(2)

 

November 2012

 

Colorado Springs, Colorado

 

 

6,498

 

Grand Pacific Center

 

March 2014

 

Bismarck, North Dakota

 

 

5,903

 

Union Terrace (1)

 

August 2014

 

Lakewood, Colorado

 

 

8,174

 

Centennial Tech Center (1)

 

December 2014

 

Colorado Springs, Colorado

 

 

12,826

 

Arapahoe Center

 

December 2014

 

Centennial, Colorado

 

 

10,006

 

Union Town Center

 

December 2014

 

Colorado Springs, Colorado

 

 

9,764

 

West Fargo Industrial

 

August 2015

 

West Fargo, North Dakota

 

 

7,279

 

300 N.P.

 

August 2015

 

Fargo, North Dakota

 

 

3,474

 

Research Parkway

 

August 2015

 

Colorado Springs, Colorado

 

 

2,546

 

One Park Center

 

August 2015

 

Westminster, Colorado

 

 

8,532

 

Highland Court

 

August 2015

 

Centennial, Colorado

 

 

11,554

 

Shea Center II

 

December 2015

 

Highlands Ranch, Colorado

 

 

22,305

 

Presidio Property Trust, Inc. properties

 

 

 

 

 

 

159,190

 

Model Home properties

 

2010-2019

 

AZ, CA, FL, IL, PA, SC, TX, WI

 

 

46,536

 

 

 

Total real estate assets and lease intangibles, net

 

$

205,726

 

 

(1)

Properties held for sale as of June 30, 2019.

(2)

The Presidio was sold on July 31, 2019.

13


Geographic Diversification Table 

The following tables show a list of properties owned by the Company grouped by state and geographic region as of June 30, 2019:

 

State

 

No. of

Properties

 

 

Aggregate

Square

Feet

 

 

Approximate %

of Square Feet

 

 

Current

Base Annual

Rent

 

 

Approximate %

of Aggregate

Annual Rent

 

California

 

 

3

 

 

 

134,787

 

 

 

9.6

%

 

$

1,822,676

 

 

 

10.0

%

Colorado

 

 

11

 

 

 

873,684

 

 

 

62.2

%

 

 

12,814,687

 

 

 

70.1