Presidio Property Trust(SQFT) - 2019 Q4 - Annual Report

Part I ITEM 1. BUSINESS Presidio Property Trust is an internally-managed REIT focused on acquiring, managing, and leasing office, industrial, and model home properties in specific US regions - The Company is an internally-managed REIT, reincorporated in Maryland in 2010 and renamed Presidio Property Trust, Inc. in October 2017[12] - As of December 31, 2019, the Company owned 15 commercial properties and 136 model homes across 7 states[12][16] - The primary investment focus is on office, industrial properties, and model homes, with a strategy to transition out of retail properties[13] 2019 & 2018 Model Home Acquisitions | Year | Model Home Properties Acquired | Purchase Price (USD Millions) | Cash Payments (USD Millions) | Mortgage Notes (USD Millions) | | :--- | :----------------------------- | :------------------------ | :----------------------- | :------------------------ | | 2019 | 33 | $13.0 | $3.9 | $9.1 | | 2018 | 45 | $17.3 | $5.2 | $12.1 | 2019 & 2018 Property Dispositions | Year | Property Sold | Sale Price (USD Millions) | Gain/(Loss) (USD Millions) | | :--- | :----------------------------- | :-------------------- | :--------------------- | | 2019 | Morena Office Center | $5.6 | $0.7 | | 2019 | Nightingale land | $0.875 | ($0.093) | | 2019 | Genesis Plaza (TIC Interest) | $5.6 | N/A (1031 exchange) | | 2019 | The Presidio office building | $12.3 | $4.5 | | 2019 | 41 Model Homes | $14.6 | $1.2 | | 2018 | Port of San Diego Complex | $24.8 | $10.0 | | 2018 | Yucca Valley Retail Center | $7.8 | $1.4 | | 2018 | Pacific Oaks Plaza | $3.9 | ($0.232) | | 2018 | 33 Model Homes | $12.6 | $0.988 | - The Company uses mortgage loans secured by individual properties, primarily non-recourse, to maximize stockholder returns, with total debt of $143.5 million as of December 31, 2019, of which $42.7 million was recourse[24] - The Company elected to be taxed as a REIT for federal income tax purposes starting December 31, 2000, requiring annual distribution of at least 90% of its REIT taxable income[39] ITEM 1A. RISK FACTORS The company faces diverse risks including real estate market volatility, interest rate fluctuations, tenant defaults, significant indebtedness, and the challenge of maintaining REIT status - Risks include adverse changes in national, regional, and local economic conditions, fluctuations in interest rates, tenant inability to pay rent, and significant competition from other real estate investors[44] - The company's model home business is highly dependent on the supply and demand for single-family homes, and competition for these properties may be significant[71][73] - A significant percentage of properties are concentrated in a small number of states (Texas and Florida for model homes, Colorado and North Dakota for commercial), increasing exposure to regional economic downturns and natural disasters[74][75] - Total gross mortgage indebtedness was approximately $143.5 million as of December 31, 2019, including a $14.0 million Polar Note, exposing the company to significant debt service obligations and default risks[100] - Failure to qualify as a REIT would result in corporate income taxation and potential inability to re-qualify for four years, significantly reducing cash available for distributions[117] - The 2017 Tax Legislation introduced changes affecting REITs, including reduced corporate tax rates, a 20% deduction for REIT dividends for individuals, and limitations on net operating loss deductions[124] - Compliance with environmental laws (e.g., asbestos, hazardous substances) and the Americans with Disabilities Act may require substantial, unanticipated expenditures[136][140] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reported no unresolved staff comments from the SEC - The Company has no unresolved staff comments[141] ITEM 2. PROPERTIES As of December 31, 2019, the company's portfolio included 13 office/industrial buildings, 4 retail centers, and 136 model homes, geographically diversified with specific regional concentrations and varying lease terms - As of December 31, 2019, the Company owned or had an equity interest in 13 office/industrial buildings (1,192,566 rentable square feet) and four retail centers (131,722 rentable square feet)[142] - The portfolio also includes 136 Model Home properties located in 7 states, with a net book value of approximately $48.5 million[16][142] Geographic Diversification of Office/Industrial and Retail Properties (as of Dec 31, 2019) | State | No. of Properties | Aggregate Square Feet | Approximate % of Square Feet | Current Base Annual Rent | of Aggregate Annual Rent | | :----------- | :---------------- | :-------------------- | :--------------------------- | :----------------------- | :----------------------- | | California | 3 | 134,787 | 10.2% | $2,351,271 | 13.4% | | Colorado | 10 | 792,462 | 59.8% | $11,767,275 | 67.3% | | North Dakota | 4 | 397,039 | 30.0% | $3,369,334 | 19.3% | | Total | 17 | 1,324,288 | 100% | $17,487,880 | 100% | Geographic Diversification of Model Home Properties (as of Dec 31, 2019) | Region | No. of Properties | Aggregate Square Feet | Approximate % of Square Feet | Current Base Annual Rent | Approximate % of Aggregate Annual Rent | | :-------- | :---------------- | :-------------------- | :--------------------------- | :----------------------- | :------------------------------------- | | Southwest | 104 | 303,602 | 79.5% | $3,109,428 | 76.6% | | West | 1 | 2,324 | 0.5% | $16,020 | 0.4% | | Southeast | 24 | 54,525 | 14.3% | $647,784 | 15.9% | | Midwest | 2 | 6,602 | 1.8% | $99,276 | 2.4% | | East | 2 | 5,255 | 1.5% | $70,716 | 1.7% | | Northeast | 3 | 9,271 | 2.4% | $121,020 | 3.0% | | Total | 136 | 381,579 | 100% | $4,064,244 | 100% | Top 10 Tenants Annualized Base Rent (as of Dec 31, 2019) | Tenant | Annualized Base Rent | % of Total Annualized Base Rent | | :----------------------------- | :------------------- | :------------------------------ | | Comcast of Colorado X, LLC | $1,095,945 | 6.07% | | Finastra USA Corporation | $612,456 | 3.39% | | Restaurant Technology Services | $400,800 | 2.22% | | MasTec North America, Inc. | $350,778 | 1.94% | | Fredrikson & Byron P.A. | $229,267 | 1.27% | | Walter Kidde Portable Equip. | $221,988 | 1.23% | | WestRock Colorado Cards, LLC | $197,923 | 1.10% | | Rodenburg LLP | $155,956 | 0.86% | | Merrill Lynch | $145,939 | 0.81% | | Joyce Heffner-Williams | $130,003 | 0.72% | | Total Top 10 | $3,541,055 | 19.61% | Lease Expirations for Office/Industrial and Retail Properties (as of Dec 31, 2019) | Expiration Year | Number of Leases Expiring | Square Footage | Annual Rental From Lease | Percent of Total | | :-------------- | :------------------------ | :------------- | :----------------------- | :--------------- | | 2020 | 48 | 211,914 | $3,351,301 | 19.8% | | 2021 | 49 | 217,083 | $3,608,051 | 21.3% | | 2022 | 45 | 220,855 | $3,348,691 | 19.8% | | 2023 | 25 | 95,429 | $1,590,023 | 9.4% | | 2024 | 23 | 146,548 | $2,415,567 | 14.3% | | Thereafter | 27 | 203,114 | $2,606,512 | 15.4% | | Totals | 217 | 1,094,943 | $16,920,145 | 100% | Lease Expirations for Model Home Properties (as of Dec 31, 2019) | Expiration Year | Number of Leases Expiring | Square Footage | Annual Rental From Lease | Percent of Total | | :-------------- | :------------------------ | :------------- | :----------------------- | :--------------- | | 2020 | 103 | 299,786 | $3,016,320 | 74.2% | | 2021 | 33 | 81,793 | $1,047,924 | 25.8% | | Totals | 136 | 381,579 | $4,064,244 | 100.0% | ITEM 3. LEGAL PROCEEDINGS The company is involved in various legal proceedings, but management anticipates no material adverse effect on its financial position, operations, or liquidity - Management believes the final outcome of legal proceedings and claims will not have a material adverse effect on the Company's financial position, results of operation or liquidity[161] ITEM 4. MINE SAFETY DISCLOSURES Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[162] Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES There is no public market for the company's common stock, which had 2,979 holders as of March 12, 2020, with cash dividends declared to maintain REIT status - There is no public market for the Company's common stock[163] - As of March 12, 2020, there were 2,979 holders of Series A common stock[164] Cash Dividends Declared Per Share | Month | 2019 Cash Dividend | 2018 Cash Dividend | | :----------- | :----------------- | :----------------- | | March 31 | $— | $— | | June 30 | $0.06 | $— | | September 30 | $— | $— | | December 31 | $— | $0.06 | | Total | $0.06 | $0.06 | - The Company plans to pay at least 90% of its annual REIT Taxable Income to stockholders to maintain REIT status[166] - As of December 31, 2019, approximately 845,000 shares of common stock were available for future grants under the 2017 Incentive Award Plan[169] ITEM 6. SELECTED FINANCIAL DATA Selected financial data is not required to be presented in this section - Selected financial data is not required[171] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company, an internally managed diversified REIT, reported a net loss in 2019 due to property sales and increased expenses, actively managing its portfolio and liquidity through operations, borrowings, and asset dispositions - The Company operates as an internally managed diversified REIT, investing in office, industrial, retail, and model home properties primarily in the western United States[174] Key Financial Results (2019 vs. 2018) | Metric | 2019 (USD Millions) | 2018 (USD Millions) | Change (USD Millions) | % Change | | :-------------------------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Total Revenue | $28.6 | $32.3 | ($3.7) | -11.4% | | Rental Operating Costs | $10.4 | $10.9 | ($0.5) | -4.4% | | General and Administrative Expenses | $5.3 | $4.5 | $0.8 | 16.2% | | Depreciation and Amortization | $7.4 | $9.1 | ($1.7) | -19.1% | | Asset Impairments | $0.0 | $0.5 | ($0.5) | -100.0% | | Interest Expense - Series B Preferred Stock | $2.2 | $4.8 | ($2.6) | -54.2% | | Interest Expense - Mortgage Notes | $7.3 | $8.3 | ($1.0) | -12.0% | | Interest Expense - Note Payable | $1.1 | $0.0 | $1.1 | N/A | | Gain on Sale of Real Estate Assets | $6.3 | $12.2 | ($5.9) | -48.4% | | Net (Loss) Income Attributable to Common Stockholders | ($0.61) | $3.38 | ($3.99) | -118.0% | - The decrease in total revenue in 2019 was primarily due to the sale of three properties in Q4 2018 and two properties in 2019, partially offset by an increase in occupancy to 84.5% (from 83.4% in 2018)[212] - The Company acquired 33 Model Home Properties for $13.0 million in 2019 and disposed of 41 model homes for $14.6 million, recognizing a gain of $1.2 million[179][220] - In 2019, the Company executed a $14.0 million Promissory Note with Polar Multi-Strategy Master Fund (Polar Note) at 8% interest, using proceeds to redeem all outstanding Series B Preferred Stock[23][219] - Short-term liquidity needs include paying down the Polar Note and $12.3 million in model home mortgage notes and $16.9 million in commercial property mortgage notes maturing in 2020[226][227] Cash Flows (2019 vs. 2018) | Activity | 2019 (USD Millions) | 2018 (USD Millions) | Change (USD Millions) | | :------------------- | :-------------- | :-------------- | :---------------- | | Operating Activities | $3.8 | $0.4 | $3.4 | | Investing Activities | $12.0 | $25.6 | ($13.6) | | Financing Activities | ($15.2) | $24.6 | ($39.8) | Funds From Operations (FFO) and Modified Funds From Operations (MFFO) (2019 vs. 2018) | Metric | 2019 (USD Millions) | 2018 (USD Millions) | | :----- | :-------------- | :-------------- | | FFO | $1.818 | $1.887 | | MFFO | $3.299 | $2.178 | Same-Store Property Operating Results (2019 vs. 2018) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :---------------------------------------------- | :---------- | :---------- | :---------- | :--------- | | Rental Revenues | $23,558,939 | $22,869,226 | $689,713 | 3.0% | | Rental Operating Costs | $9,994,328 | $9,446,192 | $548,136 | 5.8% | | Net Operating Income (NOI) | $13,564,611 | $13,423,034 | $141,577 | 1.1% | | Same-Property Occupancy, end of period | 84.8% | 80.8% | N/A | 4.0% | | Same-Properties Operating Costs as % of Revenue | 42.4% | 41.3% | N/A | 1.1% | - In 2019, the company signed 78 leases (49 new, 29 renewals) for 270,724 square feet, with comparable leases seeing an average rental rate increase of 3.2% on a cash basis and 18.5% on a straight-line basis[248] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is not required to provide quantitative and qualitative disclosures about market risk in this section - Quantitative and qualitative disclosures about market risk are not required[251] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this item are filed as described under Item 15 - The financial statements required by this item are filed with this report as described under Item 15[252] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in and disagreements with accountants on accounting and financial disclosure[253] ITEM 9A. CONTROLS AND PROCEDURES As of December 31, 2019, management concluded that the company's disclosure controls and internal control over financial reporting were effective, with no material changes during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019[255] - No changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2019, that materially affected or are reasonably likely to materially affect internal control over financial reporting[256] - Management concluded that the internal control over financial reporting was effective as of December 31, 2019, based on the COSO 2013 Framework[257][258] ITEM 9B. OTHER INFORMATION The company reported no other information required to be disclosed in this section - There is no other information to report[259] Part III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, scheduled for May 20, 2020[260] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[261] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[262] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[263] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[264] Part IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists the financial statements and schedules filed as part of the report, including the Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and an index to all exhibits - The report includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Equity, and Cash Flows, and Notes to Consolidated Financial Statements[265] - Schedule III – Real Estate Assets and Accumulated Depreciation and Amortization as of December 31, 2019, is filed as part of this report[265] - An index to the Exhibits filed as part of this Form 10-K is provided, detailing various corporate documents, agreements, and certifications[266][267] Consolidated Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Squar Milner LLP issued an unqualified opinion on the consolidated financial statements for 2019 and 2018, affirming fair presentation in accordance with GAAP - Squar Milner LLP provided an unqualified opinion on the consolidated financial statements for December 31, 2019 and 2018[275] - The audit was conducted in accordance with PCAOB standards, and the firm did not audit the Company's internal control over financial reporting[277] Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets and liabilities from 2018 to 2019, primarily due to real estate asset changes and Series B Preferred Stock redemption, with a slight increase in total equity Consolidated Balance Sheet Highlights (USD Millions) | Item | Dec 31, 2019 | Dec 31, 2018 | | :-------------------------------------------------------- | :----------- | :----------- | | ASSETS | | | | Real estate assets, net | $200.21 | $211.11 | | Cash, cash equivalents and restricted cash | $10.39 | $9.78 | | Other assets, net | $5.71 | $7.65 | | TOTAL ASSETS | $220.78 | $233.05 | | LIABILITIES | | | | Mortgage notes payable, net | $142.39 | $149.71 | | Note payable, net | $12.24 | $0.00 | | Mandatorily redeemable Series B Preferred Stock, net | $0.00 | $16.78 | | Total liabilities | $164.16 | $176.91 | | EQUITY | | | | Total stockholders' equity before noncontrolling interest | $39.18 | $40.42 | | Noncontrolling interest | $17.44 | $15.73 | | Total equity | $56.62 | $56.14 | - Real estate assets held for sale, net, decreased from $49.50 million in 2018 to $41.29 million in 2019[281] - The Mandatorily redeemable Series B Preferred Stock was fully redeemed in 2019, reducing liabilities by $16.78 million, and a new Note payable of $12.24 million was introduced[281] Consolidated Statements of Operations The company reported a net loss attributable to common stockholders of $0.61 million in 2019, a significant decline from a net income of $3.38 million in 2018, driven by decreased revenue from property sales and lower gains on real estate Consolidated Statements of Operations Highlights (USD Thousands) | Item | 2019 | 2018 | | :------------------------------------------------------ | :---------- | :---------- | | Revenues: | | | | Rental income | $27,467 | $31,142 | | Fee and other income | $1,174 | $1,202 | | Total revenues | $28,641 | $32,344 | | Costs and expenses: | | | | Rental operating costs | $10,411 | $10,887 | | General and administrative | $5,268 | $4,533 | | Depreciation and amortization | $7,365 | $9,102 | | Total costs and expenses | $23,044 | $24,521 | | Other income (expense): | | | | Interest expense-Series B Preferred Stock | ($2,226) | ($4,771) | | Interest expense-mortgage notes | ($7,337) | ($8,270) | | Interest expense-note payable | ($1,086) | $0 | | Gain on sales of real estate | $6,319 | $12,200 | | Impairment of real estate assets | $0 | ($533) | | Net income | $773 | $4,453 | | Less: Income attributable to noncontrolling interests | ($1,383) | ($1,068) | | Net (loss) income attributable to common stockholders | ($610) | $3,384 | | Basic (loss) income per common share | ($0.03) | $0.19 | - Total revenues decreased by $3.7 million (11.4%) from $32.3 million in 2018 to $28.6 million in 2019, primarily due to property sales[212][283] - Gain on sales of real estate decreased significantly from $12.2 million in 2018 to $6.3 million in 2019[220][283] - Interest expense related to Series B Preferred Stock decreased by $2.5 million due to its redemption, while a new interest expense of $1.1 million was incurred for the Polar Note[217][219][283] Consolidated Statements of Equity Total equity increased slightly from 2018 to 2019, influenced by a net loss, noncontrolling interest contributions, and restricted stock vesting, alongside common stock transactions Consolidated Statements of Equity Highlights (USD Thousands) | Item | Dec 31, 2019 | Dec 31, 2018 | | :------------------------------------------------------ | :----------- | :----------- | | Balance at beginning of year | $56,141 | $52,042 | | Net (loss) income attributable to common stockholders | ($610) | $3,384 | | Dividends declared | ($1,083) | ($1,075) | | Contributions from noncontrolling interests, net | $332 | $261 | | Common stock repurchased | ($227) | $0 | | Vesting of restricted stock | $686 | $461 | | Balance at end of year | $56,621 | $56,141 | - Net loss attributable to Presidio Property Trust, Inc. common stockholders was ($610,206) in 2019, compared to net income of $3,384,294 in 2018[284] - Dividends declared were approximately $1.08 million in 2019 and $1.08 million in 2018[284] - Noncontrolling interest increased from $15.73 million in 2018 to $17.44 million in 2019[284] Consolidated Statements of Cash Flows Net cash from operating activities significantly increased in 2019, while investing activities decreased due to lower real estate sales proceeds, and financing activities shifted to a net use primarily from preferred stock redemption Consolidated Statements of Cash Flows Highlights (USD Thousands) | Cash Flow Activity | 2019 | 2018 | | :----------------------- | :---------- | :---------- | | Operating Activities | $3,791 | $432 | | Investing Activities | $11,981 | $25,591 | | Financing Activities | ($15,157) | ($24,557) | | Net increase in cash | $615 | $1,466 | | Cash, beginning of year | $9,776 | $8,311 | | Cash, end of year | $10,391 | $9,776 | - Net cash provided by operating activities increased by $3.4 million in 2019, mainly due to a decrease in accounts receivable and lower Series B Preferred Stock interest expense[233] - Net cash provided by investing activities decreased by $13.6 million in 2019, with lower proceeds from real estate sales ($32.07 million in 2019 vs. $46.99 million in 2018) and increased capital expenditures[234][289] - Net cash used in financing activities in 2019 was primarily driven by the redemption of $16.9 million in Series B Preferred Stock and $23.18 million in mortgage note repayments, partially offset by $11.48 million net proceeds from the Polar Note[236][289] Notes to Consolidated Financial Statements The notes detail the company's organization, significant accounting policies, recent real estate transactions, and segment reporting, including future minimum rental revenues and mortgage note maturities - The Company is an internally-managed REIT, consolidating various limited partnerships where it holds a variable interest and is the primary beneficiary[292][293][300] - Significant accounting policies include recording real estate assets at cost, allocating purchase price to tangible and intangible assets, reviewing for impairment, and recognizing minimum rent on a straight-line basis[304][309][326] - The Company disposed of several properties in 2019 and 2018, including Morena Office Center, The Presidio office building, and numerous model homes, recognizing net gains on sales[339] - As of December 31, 2019, the Company's real estate assets included 12 office, 1 industrial, 4 retail properties, and 136 model homes[343] Future Minimum Rental Revenues (as of Dec 31, 2019) | Year | Office/Industrial and Retail Properties | Model Home Properties | | :--- | :------------------------------------ | :-------------------- | | 2020 | $16,907,553 | $3,016,320 | | 2021 | $13,535,430 | $1,047,924 | | 2022 | $10,425,658 | | | 2023 | $7,043,128 | | | 2024 | $5,336,123 | | | Thereafter | $5,428,467 | | | Totals | $58,676,359 | $4,064,244 | - Mortgage notes payable totaled $143.46 million as of December 31, 2019, with significant maturities of $29.17 million in 2020[353][356] - The $14.0 million Polar Note, executed in September 2019, bears 8% interest and matures on October 1, 2020 (or March 31, 2021 if extended)[357] - The Series B Preferred Stock was fully redeemed in 2019 for $16.9 million, eliminating this liability[364] Net Operating Income by Segment (USD Thousands) | Segment | 2019 | 2018 | | :---------------------- | :---------- | :---------- | | Office/Industrial Properties | $12,172 | $14,542 | | Model Home Properties | $4,001 | $4,468 | | Retail Properties | $2,057 | $2,447 | | Total NOI | $18,231 | $21,457 | Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization Schedule III provides a detailed breakdown of the company's real estate assets, including initial cost, total cost, accumulated depreciation, and net book value for each property as of December 31, 2019, summarizing changes for 2019 and 2018 Real Estate Assets, Net (USD Thousands) | Property Type | Dec 31, 2019 | Dec 31, 2018 | | :---------------------------- | :----------- | :----------- | | Office/Industrial and Retail Properties | $151,741 | $162,345 | | Model Home Properties | $48,466 | $48,763 | | Total real estate assets, net | $200,207 | $211,108 | Changes in Real Estate Assets and Accumulated Depreciation (USD Thousands) | Item | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | | Real estate balance, beginning of year | $254,676 | $274,546 | | Acquisitions | $13,038 | $17,327 | | Improvements | $6,394 | $3,359 | | Dispositions of real estate | ($29,787) | ($40,024) | | Real estate balance, end of year | $244,321 | $254,676 | | Accumulated depreciation, beginning of year | ($43,568) | ($40,012) | | Depreciation and amortization expense | ($6,694) | ($8,452) | | Dispositions of real estate | $6,147 | $4,896 | | Accumulated depreciation, end of year | ($44,114) | ($43,568) | | Real estate assets, net | $200,207 | $211,108 |