Presidio Property Trust(US:SQFT)2019-03-23 01:42Real Estate Portfolio - As of December 31, 2018, the company owned or had an equity interest in 14 office properties totaling approximately 1,150,623 rentable square feet, 1 industrial property of approximately 150,030 rentable square feet, 4 retail shopping centers totaling approximately 131,010 rentable square feet, and 144 model homes[161]. - The company acquired 45 Model Home Properties for a total purchase price of $17.3 million in 2018, consisting of cash payments of $5.2 million and mortgage notes of $12.1 million[166]. - The company disposed of 33 model homes for approximately $12.6 million in 2018, recognizing a gain of approximately $988,000[166]. - The company aims to diversify its portfolio across commercial real estate segments to mitigate risks associated with underperforming segments and tenants[161]. - The company evaluates its portfolio with a focus on enhancing the value and quality of its real estate holdings, aiming to improve underperforming assets through re-leasing efforts[169]. Financial Performance - Total revenue for the year ended December 31, 2018, was $32.3 million, a decrease of $1.0 million or 3.1% compared to $33.4 million in 2017[194]. - Rental revenues for the year ended December 31, 2018, were $24.97 million, a decrease of 3.2% from $25.80 million in 2017[225]. - Funds From Operations (FFO) for 2018 were $1.89 million, a decrease from $4.24 million in 2017[223]. - Modified Funds From Operations (MFFO) for 2018 were $2.18 million, down from $5.14 million in 2017[223]. - The company reported a net gain of approximately $12.2 million from the sale of real estate assets in 2018, compared to a net gain of $2.6 million in 2017[200]. Operating Costs and Expenses - Rental operating costs increased to $10.9 million for 2018, up $163,000 or 1.5% from $10.7 million in 2017, with rental operating costs as a percentage of revenue at 33.7%[194]. - General and administrative expenses decreased by approximately $668,000 or 12.8% to $4.5 million in 2018 from $5.2 million in 2017[195]. - Depreciation and amortization expenses were $9.1 million for 2018, a decrease of $609,000 or 6.3% compared to $9.7 million in 2017[196]. - Interest expense increased by approximately $400,000 or 5.0% to $8.3 million for 2018, driven by new loans on properties acquired during the year[199]. - Income tax expense increased by $310,000 to $519,000 for 2018, primarily due to additional federal and state taxes from capital gains[201]. Cash Flow and Liquidity - Cash and cash equivalents at December 31, 2018, totaled $5.8 million, which is part of the company's liquidity sources[203]. - As of December 31, 2018, the Company had approximately $9.8 million in cash, cash equivalents, and restricted cash, with $2.3 million restricted for capital expenditures[211]. - Net cash provided by operating activities decreased by $5.2 million to approximately $432,000 for the year ended December 31, 2018, compared to $5.6 million in 2017[214]. - Net cash provided by investing activities increased to $25.6 million in 2018, primarily due to proceeds from real estate sales totaling approximately $47.2 million, exceeding real estate purchases of $17.3 million[215]. - Net cash used in financing activities was $24.6 million in 2018, compared to cash provided of $3.6 million in 2017, largely due to redeeming 13,800 shares of Series B Preferred Shares for $13.8 million[217]. Market Conditions - The U.S. GDP growth in the fourth quarter of 2018 was estimated at 1.8%, with an unemployment rate of 3.9% as of December 31, 2018[163][164]. - Vacancy rates for the office sector of commercial real estate fell to 12.6% as of December 31, 2018, with net absorption in the U.S. office market at 58.3 million square feet during the fourth quarter[164]. - The company continues to obtain mortgages from the commercial mortgage-backed securities market, life insurance companies, and regional banks, indicating improved market conditions[167]. Leasing Activity - Same-property occupancy decreased to 83.4% for the year ended December 31, 2018, down from 87.2% in 2017[226]. - In Q4 2018, 25 leases were signed for a total of 99,181 square feet, with comparable leases showing a 38.1% average rental rate increase on a cash basis[228]. - For the year ended December 31, 2018, 79 leases were signed for 304,660 square feet, with comparable leases reflecting a 14.2% average rental rate increase on a cash basis[229]. - New office leases for comparable spaces in 2018 had an average rental rate increase of 4.3% on a cash basis, while renewals had a 15.6% increase[229]. - Same-store growth decline is primarily due to lower to flat rental rates on new leases and lease renewals, along with changes in portfolio occupancy[227]. Challenges and Risks - The downtime between lease expiration and new lease commencement typically ranges from 6-24 months, negatively impacting total NOI and same property NOI[230]. - Rental rate roll downs can adversely affect total NOI and same property NOI if expiring leases are not replaced with new or renewal leases at equal or higher rates[230]. - The company's geographically diverse portfolio results in fluctuating rent roll ups on a market-by-market basis, but the overall portfolio is currently estimated to be at market[230].