Presidio Property Trust(SQFT) - 2025 Q2 - Quarterly Report

Cautionary Language Regarding Forward-Looking Statements This section warns that forward-looking statements involve risks and uncertainties, including real estate investment, competition, and economic challenges - Forward-looking statements in this report involve risks and uncertainties that could cause actual results to differ materially and adversely from those anticipated[12] - Key risk factors include inherent risks of real estate investments, significant competition, decreased demand for commercial space, tenant payment failures, challenging economic conditions, inability to generate sufficient cash for dividends/debt, adverse changes in financing markets, potential uninsured losses, and failure to qualify as a REIT[12][14][15][16] Part I. Financial Information This section presents the company's unaudited consolidated financial statements and management's financial analysis Item 1. Financial Statements This section presents the company's unaudited consolidated financial statements and related notes Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and equity | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :-------------- | :---------------- | | Total Assets | $128,400,413 | $142,569,650 | | Real estate assets, net | $114,576,297 | $127,596,500 | | Real estate assets held for sale, net | $7,286,923 | $22,185,742 | | Cash, cash equivalents and restricted cash | $7,285,089 | $8,036,496 | | Total Liabilities | $99,023,400 | $107,624,495 | | Mortgage notes payable, total net | $94,603,804 | $102,094,094 | | Total Equity | $29,377,013 | $34,945,155 | Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing revenues, expenses, and net loss | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenue | $4,378,740 | $4,586,541 | $8,503,925 | $9,376,603 | | Total costs and expenses | $8,215,343 | $5,148,026 | $12,761,010 | $10,242,619 | | Net loss | $(5,047,620) | $(11,378,675) | $(2,670,705) | $(15,116,470) | | Net loss attributable to common stockholders | $(5,850,621) | $(12,391,371) | $(4,164,844) | $(18,155,066) | | Basic & Diluted EPS | $(5.13) | $(9.97) | $(3.42) | $(14.69) | | Gain on sales of real estate, net (6 months) | N/A | N/A | $4,777,327 | $2,829,998 | | Net loss in Conduit Pharmaceuticals marketable securities (6 months) | N/A | N/A | $(184,459) | $(13,888,667) | Consolidated Statements of Changes in Equity This section presents the company's consolidated statements of changes in equity, detailing movements in total equity, net loss, and dividends | Metric | December 31, 2024 | June 30, 2025 | Change | | :------------------------------------- | :---------------- | :-------------- | :----- | | Total Equity | $34,945,155 | $29,377,013 | -$5,568,142 | | Net (loss) income (6 months) | N/A | $(5,276,525) | N/A | | Dividends to Series D preferred stockholders (6 months) | N/A | $(1,153,671) | N/A | | Repurchase of Series A Common Stock, at cost (6 months) | N/A | $(1,507,999) | N/A | | Repurchase of Series D preferred stock, at cost (6 months) | N/A | $(327,787) | N/A | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing operating, investing, and financing activities | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :------------------------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash used in operating activities | $(1,012,227) | $(1,301,028) | $288,801 | | Net cash provided by investing activities | $11,372,797 | $12,960,482 | -$1,587,685 | | Net cash used in financing activities | $(11,111,977) | $(9,635,001) | -$1,476,976 | | Net (decrease) increase in cash equivalents and restricted cash | $(751,407) | $2,024,453 | -$2,775,860 | | Proceeds from sales of real estate, net | $21,544,343 | $20,058,923 | $1,485,420 | | Repayment of mortgage notes payable | $(14,014,678) | $(17,282,249) | $3,267,571 | Notes to Consolidated Financial Statements This section provides detailed notes explaining the company's accounting policies, recent transactions, and financial position Note 1. Organization and Basis of Presentation This note describes the company's structure as an internally-managed REIT and key corporate events - Presidio Property Trust, Inc. is an internally-managed real estate investment trust (REIT) with holdings in office, industrial, retail, and model home properties[26] - The company owns 10 commercial properties and operates through consolidated limited partnerships (NetREIT Partnerships and Model Home Partnerships)[26][31] - The company has elected to be taxed as a REIT and utilizes Taxable REIT Subsidiaries (TRSs) for certain activities[29][30] - A fixed-price self-tender offer for Series A common stock was completed on May 5, 2025, purchasing 214,412 shares for approximately $1.46 million[32] - Effective May 19, 2025, the company executed a 1-for-10 reverse stock split of its outstanding common stock[33] Note 2. Significant Accounting Policies This note details the company's significant accounting policies, including basis of presentation, consolidation, and estimates Basis of Presentation This section outlines the basis for preparing the consolidated financial statements in accordance with U.S. GAAP and SEC regulations - Consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial statements and SEC regulations (Form 10-Q, Article 8 of Regulation S-X)[38] - The consolidated balance sheet as of December 31, 2024, is derived from the audited 2024 Annual Report[38] Principles of Consolidation This section describes the entities included in the consolidated financial statements, including subsidiaries and partnerships - The consolidated financial statements include Presidio Property Trust, Inc., its subsidiaries (NetREIT Advisors, LLC and Dubose Advisors LLC, NetREIT Dubose Model Home REIT, Inc.), and the NetREIT Partnerships and Model Home Partnerships[39] - Noncontrolling interests in NetREIT Partnerships are classified as part of consolidated net (loss) income and equity[40] Use of Estimates This section highlights management's use of estimates and assumptions in preparing the financial statements - Financial statements require management to make estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[41] - Significant estimates include private warrants, allocation of property acquisition purchase price, valuation of long-lived assets, and allowance for doubtful accounts[41] Real Estate Assets and Lease Intangibles This section details the accounting policies for real estate assets, including cost capitalization and purchase price allocation - Land, buildings, and improvements are recorded at cost, including tenant improvements and lease acquisition costs[42] - Purchase price of acquired properties is allocated to tangible assets and identified intangible assets/liabilities (e.g., above/below-market leases, in-place leases) based on fair values[42] - Amortization of above and below-market rents resulted in a net increase in rental income of approximately $1,244 for the three months and $2,265 for the six months ended June 30, 2025[45] Deferred Leasing Costs This section explains the capitalization and amortization policies for costs incurred for successful property leases - Costs incurred for successful property leases are capitalized as deferred leasing costs and amortized on a straight-line basis over the lease terms (generally one to five years)[48] | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Net deferred leasing costs | $1.4 million | $1.7 million | | Amortization expense (3 months) | $82,657 | $119,278 | | Amortization expense (6 months) | $217,433 | $244,099 | Cash, Cash Equivalents and Restricted Cash This section defines cash and cash equivalents and details the nature of restricted cash held by lenders | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :-------------- | :---------------- | | Cash, cash equivalents and restricted cash | $7.3 million | $8.0 million | | Restricted cash | $3.6 million | $5.0 million | - Restricted cash is held in escrow by lenders for property taxes, insurance, leasing costs, future debt payments, and capital expenditures[49] Real Estate Held for Sale and Discontinued Operations This section outlines the criteria for reclassifying assets as 'held for sale' and identifies current properties in this category - Assets are reclassified as 'held for sale' when disposition is approved, available for immediate sale, actively seeking a buyer, and probable within one year[50] - As of June 30, 2025, one commercial property (Dakota Center) and five model homes were classified as 'held for sale'[50] Impairments of Real Estate Assets This section describes the company's policy for recognizing impairment charges on real estate assets - Impairment is recognized when expected undiscounted cash flows for a property held for use are less than its carrying amount, or when fair value less costs to sell is less than carrying amount for a property held for sale[52] | Impairment Type | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Model homes | ~$0.1 million | ~$0.2 million | | Commercial properties (Dakota Center & Shea Center II) | ~$4.2 million | $0 | - New impairment charges for model homes in Q2 2025 reflect estimated sales prices due to an abnormally short hold period (less than two years)[54] Fair Value Measurements This section categorizes fair value measurements and details the company's investments in warrants - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (significant unobservable inputs)[55][58] - As of June 30, 2025, the company held no marketable securities other than investments in Conduit Pharmaceuticals' common stock warrants[56] | Investment | June 30, 2025 | December 31, 2024 | Fair Value Level | | :------------------------------------------------- | :-------------- | :---------------- | :--------------- | | Private CDT Warrants | $0 | $0 | Level 3 | | Conduit's public common stock warrants (CDTTW) | ~$7,728 | ~$0.2 million | Level 1 | Earnings per share ("EPS") This section explains the computation of EPS using the two-class method and the treatment of dilutive shares - EPS is computed using the two-class method for participating securities (unvested restricted stock with non-forfeitable dividends)[60] - In periods of net loss, all potentially dilutive common stock shares are considered anti-dilutive and excluded from EPS calculation[61] | Potentially Dilutive Shares | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Common Stock Warrants | 200,000 | 200,000 | 200,000 | 200,000 | | Placement Agent Warrants | 8,000 | 8,000 | 8,000 | 8,000 | | Series A Warrants | 1,445,007 | 1,445,007 | 1,445,007 | 1,445,007 | | Unvested Common Stock Grants | 208,498 | 203,466 | 208,498 | 203,466 | | Total potentially dilutive shares | 1,861,505 | 1,856,473 | 1,861,505 | 1,856,473 | Variable Interest Entity This section describes the company's judgment and estimates in determining and consolidating Variable Interest Entities - The company uses judgment and estimates to determine if an entity is a Variable Interest Entity (VIE) and if it should be consolidated[62] - A reporting entity is the primary beneficiary if it has the power to direct activities significantly impacting the VIE's economic performance and the obligation to absorb losses or right to receive benefits[62] Immaterial Error Corrections & Reclassifications This section details immaterial error corrections and reclassifications made to prior period financial statements - In Q4 2024, amortization of model home transaction fees was reclassified from 'fees and other income' to 'rental income' on the consolidated statement of operations, with no change to total revenues[64] - Adjustments were made to the consolidated statement of cash flows for the six months ended June 30, 2024, to correct prior year building/tenant improvements and debt issuance cost presentations, impacting operating, investing, and financing cash flows[65][66] Recently Issued and Adopted Accounting Pronouncements This section discusses recently issued and adopted accounting pronouncements and their impact on the company - The company adopted ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), updating financial statement disclosures accordingly[69][70] - The SEC's climate-disclosure rules (March 2024) were voluntarily stayed and later had their defense ended by the SEC, with potential for judicial ruling[71] - The company is evaluating the impact of ASU 2024-03 (Expense Disaggregation Disclosures), effective for annual periods beginning after December 15, 2026[72] Note 3. Recent Real Estate Transactions This note summarizes the company's recent acquisitions and dispositions of model homes and commercial properties | Transaction Type | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | | Model Home Acquisitions (number) | 22 | 12 | | Model Home Acquisitions (value) | ~$9.4 million | ~$5.7 million | | Commercial Property Dispositions (value) | ~$17.0 million (net gain ~$4.2 million) | $0 | | Model Home Dispositions (number) | 13 | 42 | | Model Home Dispositions (value) | ~$5.9 million (net gain ~$0.6 million) | ~$20.1 million (net gain ~$2.8 million) | Note 4. Real Estate Assets This note details the company's real estate portfolio, including commercial and model home properties, and changes in their net value - As of June 30, 2025, the company owned 8 office/industrial properties (758,175 sq ft), 1 retail property (10,500 sq ft), and 87 model home residential properties (260,227 sq ft)[78] | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :-------------- | :---------------- | | Total real estate assets and lease intangibles, net | $114,576,297 | $127,596,500 | | Commercial properties, net | $73,725,786 | $90,180,500 | | Model Home properties, net | $40,850,511 | $37,416,000 | - Two commercial properties (Union Town Center and Research Parkway) were sold in February 2025 for $17.0 million, resulting in a $4.2 million net gain[77][82] - Impairment charges of approximately $3.3 million for Dakota Center and $0.9 million for Shea Center II were recorded as of June 30, 2025[82] Note 5. Lease Intangibles This note presents the net value of lease intangible assets and expected future amortization expense | Lease Intangible | June 30, 2025 (net) | December 31, 2024 (net) | | :----------------- | :------------------ | :-------------------- | | In-place leases | $5,574 | $10,465 | | Leasing costs | $5,440 | $9,312 | | Above-market leases | $0 | $0 | | Total | $11,014 | $19,777 | | Year | Future Aggregate Amortization Expense | | :------------------------ | :-------------------------- | | 2025 | $6,910 | | 2026 | $4,104 | | Total | $11,014 | Note 6. Other Assets This note details the components of other assets, including deferred rent, prepaid expenses, and accounts receivable | Other Asset | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Deferred rent receivable | $1,880,640 | $2,126,609 | | Prepaid expenses, deposits and other | $956,919 | $406,494 | | Notes receivable | $316,374 | $316,374 | | Accounts receivable, net | $211,921 | $463,194 | | Right-of-use assets, net | $51,913 | $64,026 | | Total other assets | $3,417,767 | $3,376,697 | Note 7. Mortgage Notes Payable This note details the company's mortgage notes payable, including changes, interest rates, and future principal payments | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :-------------- | :---------------- | | Mortgage Notes Payable, net | $94,603,804 | $102,094,094 | | Commercial properties notes payable | $66,974,176 | $76,781,271 | | Model Home mortgage notes | $28,445,612 | $26,060,798 | | Weighted average interest rate | 5.90% (as of June 30, 2025) | 5.38% (as of June 30, 2024) | - The non-recourse loan on the Dakota Center property matured on July 6, 2024, and is now classified as 'mortgage notes payable related to properties held for sale, net'[87] - Union Town Center and Research Parkway loans were paid in full following their sale in February 2025[87] - Three commercial property loans (One Park Centre, Genesis Plaza, Shea Center II) totaling approximately $28.1 million mature within the next 12 months, with refinancing or sale options under review[87][207] | Years ending December 31 | Total Principal Payments | | :----------------------- | :----------------------- | | 2025 | $24,361,034 | | 2026 | $19,676,405 | | 2027 | $929,814 | | 2028 | $9,397,962 | | 2029 | $23,499,782 | | Thereafter | $17,554,791 | | Total | $95,419,788 | Note 8. Notes Payable This note describes the company's SBA Economic Injury Disaster Loan and other notes payable - The company has an SBA Economic Injury Disaster Loan (EIDL) of $150,000, with principal and interest deferred for 12 months from issuance, accruing 3.75% interest, and maturing August 17, 2050[90] | Loan | June 30, 2025 | December 31, 2024 | | :---------------- | :-------------- | :---------------- | | SBA EIDL | $142,375 | $144,089 | - A $0.3 million promissory note issued to a majority-owned subsidiary for model home refinancing was paid in full in October 2024[91] Note 9. Investment in Conduit Pharmaceuticals This note details the company's investment in Conduit Pharmaceuticals, including warrants and recent stock sales - Conduit Pharmaceuticals executed a 1-for-100 reverse stock split on January 24, 2025[92] - The company sold all remaining 29,431 shares of CDT common stock for $13,990 in May 2025[92] | Investment | June 30, 2025 | | :------------------------------------- | :-------------- | | Public common stock warrants (CDTTW) | 709,000 | | Private common stock warrants | 540,000 | | Combined value | ~$7,728 | - A loss of $184,459 on Conduit's marketable securities was recorded for the six months ended June 30, 2025, a significant reduction from the $13.9 million loss in the prior year[192] Note 10. Commitments and Contingencies This note outlines estimated capital expenditures, potential impacts from activist stockholders, and other market risks - Approximately $1.6 million is estimated for capital expenditures on existing properties for the remainder of 2025[94] - Activist stockholder activities could adversely affect the business by incurring costs, diverting management attention, and impacting business opportunities or stock price[95] - The company is not currently subject to any material litigation or threatened litigation, nor is it aware of any material environmental liabilities[96][97] - The company monitors financial market concerns such as economic recession, interest rate increases, trade wars, labor shortages, and inflation, which could impact commercial real estate fundamentals[98] Note 11. Stockholders' Equity This note details the company's equity structure, including preferred and common stock, dividends, and repurchase programs - The company is authorized to issue up to 1,000,000 shares of Preferred Stock and up to 100,000,000 shares of Series A Common Stock[99][109] - Series D Preferred Stock holders receive cumulative cash dividends at 9.375% per annum ($2.34375 per share) on a $25.00 liquidation preference, payable monthly[102] - The company may redeem Series D Preferred Stock at $25.00 per share plus unpaid dividends, commencing June 15, 2026, or earlier upon a Change of Control[107] - A 1-for-10 reverse stock split of Series A Common Stock was effected on May 19, 2025[113] - A stock repurchase program authorized in December 2024 allows for repurchases of up to $6.0 million of Series A Common Stock and $4.0 million of Series D Preferred Stock, expiring December 2025[114] | Stock Repurchase (6 months ended June 30, 2025) | Shares Repurchased | Total Cost | | :---------------------------------------------- | :----------------- | :--------- | | Series A Common Stock | 4,091 | $18,552 | | Series D Preferred Stock | 22,259 | $327,787 | - A fixed-price self-tender offer for Series A Common Stock was completed on May 5, 2025, purchasing 214,412 shares for approximately $1.46 million[115] | Dividends Paid to Series D Preferred Stockholders | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------------- | :--------------------------- | :--------------------------- | | Total Cash Dividends | ~$1.2 million | ~$1.1 million | Note 12. Share-Based Incentive Plan This note describes the company's restricted stock incentive plan, including vesting periods and outstanding shares - The company's restricted stock incentive plan grants awards that generally vest over three-to-ten-year periods[118] - The 2017 Incentive Award Plan was amended in June 2025 to increase available shares to 450,000 and include an evergreen provision to maintain shares at 15% of outstanding common stock[119] | Restricted Stock Activity | Shares | | :------------------------ | :----- | | Balance at December 31, 2024 | 117,081 | | Granted | 97,800 | | Vested | (6,326) | | Balance at June 30, 2025 | 208,555 | - As of June 30, 2025, future unrecognized stock compensation related to unvested shares totaled approximately $1.4 million[120] Note 13. Segments This note details the company's reportable segments and their performance based on Net Operating Income - The company's reportable segments are Office/Industrial Properties, Model Home Properties, and Retail Properties, with performance evaluated by the CEO based on Net Operating Income (NOI)[121][122] - For Model Home performance, Adjusted NOI includes gain or loss on sale of real estate assets net of impairments[123] | Segment | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | | :---------------- | :--------------------------- | :--------------------------- | :----- | | Retail | $251,460 | $732,647 | -$481,187 | | Office/Industrial | $2,982,301 | $2,904,502 | $77,799 | | Model Homes | $2,281,945 | $4,974,636 | -$2,692,691 | | Corporate and Other | $359,517 | $341,951 | $17,566 | | Total Adjusted NOI | $5,875,223 | $8,953,736 | -$3,078,513 | | Investment Type | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Acquisition of operating properties, net | $9,444,465 | $5,740,918 | | Capital expenditures and tenant improvements | $709,531 | $1,213,936 | | Total real estate investments | $10,153,996 | $6,954,854 | Note 14. Income Tax Provision This note explains the company's income tax treatment as a REIT and the provision for its Taxable REIT Subsidiaries - As a REIT, the company is generally exempt from federal income tax on distributed earnings but its TRSs are subject to federal, state, and local income taxes[142] | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | | Current income tax provision (benefit) | $28,501 | $160,586 | - An income tax asset of $298,644 related to TRS operating activities was reported as of June 30, 2025, and December 31, 2024[143] Note 15. Related Party This note details transactions with related parties, including leasing arrangements and payroll reimbursements | Rent Billed to Related Parties | 2025 | 2024 | | :-------------------- | :----- | :----- | | 3 months ended June 30 | $3,378 | $2,688 | | 6 months ended June 30 | $6,755 | $5,376 | | Payroll Reimbursement from Related Parties | 2025 | 2024 | | :-------------------- | :--------- | :--------- | | 6 months ended June 30 | $65,212 | $75,715 | | Payments to Larry Dubose (6 months) | Consulting Fees | Distributions | | :---------------------------------- | :-------------- | :------------ | | 2025 | $25,000 | $7,599 | | 2024 | $153,750 | $86,520 | Note 16. Subsequent Events This note describes significant events occurring after the reporting period, including dividends and a direct offering - Dividends of $0.19531 per share for Series D Preferred Stock were declared for July, August, and September 2025[151] - A registered direct offering on July 15, 2025, raised approximately $2.05 million in gross proceeds ($1.7 million net) from the sale of Series A Common Stock and pre-funded warrants, intended for working capital and property acquisitions[152][153] - Series A Common Stock Purchase Warrants were amended to reduce the exercise price from $55 to $12 per share and extend the termination date to July 16, 2030[154] - On August 6, 2024, the mortgage loan on Genesis Plaza property was refinanced for $6.25 million, with a four-year term and 7.07% interest rate[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results Overview This section provides an overview of the company's business as an internally managed, diversified REIT - The company operates as an internally managed, diversified REIT, primarily holding office, industrial, retail, and triple-net leased model home properties[160] - As of June 30, 2025, the portfolio includes 8 office/industrial buildings (758,175 sq ft), 1 retail building (10,500 sq ft), and 87 model home residential properties (260,227 sq ft)[160] - Model homes are typically leased back for two to three years to homebuilders on a triple-net basis, where tenants cover all operating, maintenance, insurance, and real estate taxes[162] - The Board of Directors established a Strategic Planning and Cyber Committee in June 2024 to oversee business strategy and cybersecurity risks[164] Significant Transactions This section details the company's significant real estate acquisition and disposition activities | Transaction Type | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | | Model Home Acquisitions (number) | 22 | 12 | | Model Home Acquisitions (value) | ~$9.4 million | ~$5.7 million | | Commercial Property Dispositions (value) | ~$17.0 million (net gain ~$4.2 million) | $0 | | Model Home Dispositions (number) | 13 | 42 | | Model Home Dispositions (value) | ~$5.9 million (net gain ~$0.6 million) | ~$20.1 million (net gain ~$2.8 million) | Critical Accounting Policies This section confirms no material changes to the company's critical accounting policies since the last annual report - There have been no material changes to the company's critical accounting policies since the 2024 year-end Annual Report[170] Management Evaluation of Results of Operations This section outlines management's approach to assessing operating results and strategic focus on asset performance - Management assesses operating results based on cash flow generation for expenses, debt service, and stockholder distributions, giving less emphasis to non-cash charges[171] - Efforts focus on improving underperforming assets through re-leasing and rental rate negotiations, with properties lacking value appreciation or cash flow potential being sold for reinvestment[172] Results of Operations for the Three Months Ended June 30, 2025 and 2024 This section analyzes the company's financial performance for the three months ended June 30, 2025 and 2024 | Metric | 2025 | 2024 | Change | | :------------------------------------- | :----------- | :----------- | :------- | | Total revenues | ~$4.4 million | ~$4.6 million | -$0.2 million | | Rental operating costs | ~$1.5 million | ~$1.5 million | ~$0 | | G&A expenses | ~$1.2 million | ~$2.2 million | -$1.0 million | | Depreciation and amortization | ~$1.2 million | ~$1.4 million | -$0.2 million | | Asset impairment charges | ~$4.3 million | ~$0.1 million | +$4.2 million | | Interest expense - mortgage notes | ~$1.5 million | ~$1.5 million | ~$0 | | Income allocated to non-controlling interests | ~$0.2 million | ~$0.5 million | -$0.3 million | | Loss on Conduit remeasurement | $7,802 | ~$10.0 million | -$9.99 million | - The decrease in total revenue is primarily due to the sale of two commercial properties in February 2025[173] - G&A expenses decreased by $1.0 million due to reduced consulting and legal fees, lower board fees (replaced by stock compensation), and reduced income tax preparation fees[175] - Significant impairment charges of $3.3 million for Dakota Center and $0.9 million for Shea Center II were recorded in Q2 2025[178] Results of Operations for the Six Months Ended June 30, 2025 and 2024 This section analyzes the company's financial performance for the six months ended June 30, 2025 and 2024 | Metric | 2025 | 2024 | Change | | :------------------------------------- | :----------- | :----------- | :------- | | Total revenues | ~$8.5 million | ~$9.4 million | -$0.9 million | | Rental operating costs | ~$3.1 million | ~$3.1 million | ~$0 | | G&A expenses | ~$2.9 million | ~$4.3 million | -$1.4 million | | Depreciation and amortization | ~$2.5 million | ~$2.7 million | -$0.2 million | | Asset impairment charges | ~$4.3 million | ~$0.2 million | +$4.1 million | | Interest expense - mortgage notes | ~$3.0 million | ~$3.0 million | ~$0 | | Income allocated to non-controlling interests | ~$0.3 million | ~$2.0 million | -$1.7 million | | Loss on Conduit remeasurement | $184,459 | ~$13.9 million | -$13.7 million | - The decrease in total revenue is attributed to lower model home rental income and transaction fees, and the sale of two commercial properties[183] - G&A expenses decreased by $1.4 million due to reduced consulting fees (including a one-time payment in 2024), lower legal fees, reduced board fees, and decreased company-wide bonus accruals[185] - Asset impairment charges increased significantly to $4.3 million, primarily due to Dakota Center ($3.3 million) and Shea Center II ($0.9 million)[187] Geographic Diversification This section details the geographic distribution of the company's commercial and model home properties | State | No. of Properties | Aggregate Square Feet | % of Square Feet | Current Base Annual Rent | % of Aggregate Annual Rent | | :------------ | :---------------- | :-------------------- | :--------------- | :----------------------- | :------------------------- | | California | 1 | 57,807 | 7.5% | $1,548,723 | 14.8% | | Colorado | 3 | 269,503 | 35.1% | $4,238,114 | 40.4% | | Maryland | 1 | 31,752 | 4.1% | $739,050 | 7.1% | | North Dakota | 4 | 399,113 | 51.9% | $3,605,054 | 34.4% | | Texas | 1 | 10,500 | 1.4% | $349,546 | 3.3% | | Total | 10 | 768,675 | 100.0% | $10,480,487 | 100.0% | | State | No. of Properties | Aggregate Square Feet | % of Square Feet | Current Base Annual Rent | % of Aggregate Annual Rent | | :-------- | :---------------- | :-------------------- | :--------------- | :----------------------- | :------------------------- | | Alabama | 10 | 23,835 | 9.2% | $347,064 | 9.2% | | Arizona | 2 | 6,822 | 2.6% | $149,196 | 3.9% | | Tennessee | 2 | 5,534 | 2.1% | $89,304 | 2.4% | | Texas | 73 | 224,036 | 86.1% | $3,207,360 | 84.5% | | Total | 87 | 260,227 | 100.0% | $3,792,924 | 100.0% | Liquidity and Capital Resources This section discusses the company's sources of liquidity, capital resources, and cash flow activities - Future liquidity sources include existing cash, cash flows from operations, mortgage refinancing, real estate sales, new borrowings, and equity/debt security sales[194] - Cash and restricted cash totaled approximately $7.3 million at June 30, 2025[194] | Period | Total Principal Payments on Mortgage Notes Payable | | :------------------------------------- | :----------------------------------------------- | | Last three quarters of 2025 | ~$24.4 million | | Year ending December 31, 2026 | ~$19.7 million | - Management believes current working capital and ability to refinance mortgages will fund operations for at least the next twelve months[196] - A stock repurchase program for up to $6.0 million of Series A Common Stock and $4.0 million of Series D Preferred Stock was authorized in December 2024, expiring December 2025[198] | Cash Dividends on Series D Preferred Stock | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------- | :--------------------------- | :--------------------------- | | Total Cash Dividends | ~$1.2 million | ~$1.1 million | - Net cash used in operating activities decreased to $1.0 million for the six months ended June 30, 2025, from $1.3 million in the prior year[209] - Net cash provided by investing activities was $11.4 million for the six months ended June 30, 2025, compared to $13.0 million used in the prior year, primarily due to commercial property sales[210] - Net cash used in financing activities increased to $11.1 million for the six months ended June 30, 2025, from $9.6 million in the prior year, driven by higher mortgage repayments and stock repurchases[212] Off-Balance Sheet Arrangements This section describes the company's outstanding common stock warrants and other off-balance sheet commitments - The company has outstanding Common Stock Warrants (200,000 shares) with an exercise price adjusted to $12.00 per share and an extended term to July 16, 2030[212][214] - Placement Agent Warrants (8,000 shares) are outstanding with an exercise price of $62.50 per share[213][215] - Series A Warrants (1,445,007 shares) are outstanding with a right to purchase common stock at $70.00 per share[217][218] Inflation This section addresses the impact of inflation on the company's lease provisions and property expenses - Lease provisions generally include limited rent increases based on fixed amounts, CPI (with ceilings), or client sales volumes, which are expected to result in rent increases over time due to inflation[219] - Net lease agreements help mitigate exposure to rising property expenses from inflation, as tenants are responsible for these costs[220] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[221] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Disclosure Controls and Procedures This section describes the company's disclosure controls and procedures and their effectiveness - The company maintains disclosure controls and procedures to ensure timely and accurate reporting of information required by Exchange Act reports[222] - The CEO and CFO concluded that the disclosure controls and procedures were effective as of June 30, 2025[223] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the quarter - No changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[224] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings or threatened litigation - The company is not presently subject to any material litigation nor is there any material threatened litigation[225] Item 1A. Risk Factors No new material risk factors were reported in this quarterly filing - No new material risk factors are disclosed in this report[226] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program and a fixed-price self-tender offer for Series A Common Stock - A stock repurchase program, authorized in December 2024, allows for repurchases of up to $6.0 million of Series A Common Stock and $4.0 million of Series D Preferred Stock, expiring in December 2025[227] | Stock Type | Shares Repurchased (6 months ended June 30, 2025) | Total Cost | | :----------------------- | :---------------------------------------------- | :--------- | | Series A Common Stock | 4,091 | $18,552 | | Series D Preferred Stock | 22,259 | $327,787 | - A fixed-price self-tender offer for Series A Common Stock was completed on May 5, 2025, purchasing 214,412 shares for approximately $1.46 million[230] Item 3. Defaults Upon Senior Securities This section reports a maturity date default on a loan secured by the Dakota Center property - On March 13, 2025, the company received a maturity date default notice for an $11.1 million loan secured by the Dakota Center property[232] - The default requires payment of a default interest rate (5% above original) and lender expenses[233] - As of the report date, the default amount is approximately $9.1 million, with a total arrearage of approximately $0.4 million[233] Item 4. Mine Safety Disclosures No mine safety disclosures are applicable to the company - No mine safety disclosures are applicable[234] Item 5. Other Information This section confirms no director or officer adopted or terminated trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[235] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include Articles of Amendment (3.1), CEO and CFO certifications under Sarbanes-Oxley Act (31.1, 31.2, 32.1), and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[236] Signatures This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer - The report was signed on August 14, 2025, by Jack K Heilbron, Chief Executive Officer, and Ed Bentzen, Chief Financial Officer[238]