Presidio Property Trust(SQFT) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls ITEM 1. FINANCIAL STATEMENTS This section provides unaudited condensed consolidated financial statements and detailed notes on the company's organization, accounting policies, and financial position Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, as of September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets | Metric | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :------------------------------------- | :----------------------- | :------------------- | | Total Assets | $288,622,798 | $161,196,763 | | Real estate assets, net | $126,786,906 | $138,064,936 | | Investments held in Trust | $135,706,687 | — | | Total Liabilities | $105,286,720 | $95,714,143 | | SPAC Class A common stock subject to possible redemption | $129,246,639 | — | | Total Equity | $54,089,439 | $65,482,620 | Condensed Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net income (loss) for the three and nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $4,391,975 | $4,376,179 | $13,285,977 | $14,891,517 | | Total Costs and Expenses | $4,261,528 | $4,200,653 | $12,646,198 | $13,504,571 | | Interest expense - mortgage notes | $(1,382,120) | $(1,030,883) | $(3,485,693) | $(3,542,940) | | Gain on sales of real estate, net | $1,307,258 | $627,322 | $4,057,527 | $2,060,336 | | Net income (loss) | $351,175 | $(424,528) | $1,149,411 | $(903,866) | | Net loss attributable to Presidio Property Trust, Inc. common stockholders | $(1,302,039) | $(1,390,887) | $(5,956,304) | $(3,298,366) | | Basic & Diluted EPS | $(0.11) | $(0.13) | $(0.51) | $(0.33) | Condensed Consolidated Statements of Changes in Equity This section presents the changes in the company's total equity, including net income (loss) and dividends, for the nine months ended September 30, 2022 Condensed Consolidated Statements of Changes in Equity | Metric | Dec 31, 2021 | Sep 30, 2022 | | :------------------------------------- | :----------- | :----------- | | Total Equity | $65,482,620 | $54,089,439 | | Net income (loss) (9 months) | N/A | $(828,486) (Q1), $(291,156) (Q2), $(763,753) (Q3) | | Dividends paid to Series A Common Stockholders (9 months) | N/A | $(2,857,081) | | Dividends to Series D Preferred Stockholders (9 months) | N/A | $(1,616,397) | | Remeasurement of SPAC Class A common stock subject to possible redemption (9 months) | N/A | $(4,734,793) | | Repurchase of Series A Common Stock, at cost (9 months) | N/A | $(277,696) | | Repurchase of Series D Preferred Stock, at cost (9 months) | N/A | $(84,386) | Condensed Consolidated Statements of Cash Flows This section details the company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided operating activities | $1,888,302 | $1,125,004 | | Net cash (used in) provided by investing activities | $(123,828,137) | $37,278,965 | | Investment of SPAC IPO proceeds into Trust Account | $(134,895,000) | — | | Proceeds from sales of real estate, net | $20,603,179 | $47,906,909 | | Net cash provided by (used in) financing activities | $125,806,821 | $(22,128,590) | | Proceeds from initial public offering of SPAC | $132,859,920 | — | | Net increase in cash equivalents and restricted cash | $3,866,986 | $16,275,379 | | Cash, cash equivalents and restricted cash - end of period | $18,569,075 | $27,816,296 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering various accounting policies and transactions 1. ORGANIZATION The company is an internally-managed REIT owning commercial and model home properties, operating TRSs, and has engaged in recent capital-raising activities to support its liquidity - The Company is an internally-managed REIT, owning 12 commercial properties and 82 model home properties. It operates as a REIT for federal income tax purposes and uses TRSs for non-customary services and non-REIT qualifying assets[25][27][28][30] - The company completed a one-for-two reverse stock split of its Series A Common Stock on July 29, 2020[29] - In July 2021, the company issued 1,000,000 shares of Series A Common Stock, warrants to purchase up to 2,000,000 shares, and pre-funded warrants to purchase up to 1,000,000 shares, raising capital for general corporate and working capital purposes[31] - In January 2022, the company distributed five-year listed Series A Warrants to Series A Common Stockholders, allowing purchase of one common share at $7.00, converting to 1/10 of a common share at expiration if unexercised[34] - In June 2021, the company completed a secondary offering of 920,000 shares of 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock, generating approximately $20.5 million in net proceeds for general corporate and working capital purposes, including property acquisitions[35] - Management believes that existing working capital and the ability to refinance commercial and model home mortgages will fund operations for at least the next twelve months[38] 2. SIGNIFICANT ACCOUNTING POLICIES The company's interim financial statements follow GAAP and SEC regulations, consolidating VIEs, classifying SPAC common stock as temporary equity, and valuing marketable securities at fair value - The company consolidates Murphy Canyon Acquisition Corp. (SPAC) as a Variable Interest Entity (VIE) due to its 23.5% equity ownership, executive officer overlap, and significant influence over funding and initial business combination (IBC)[42][64] - The company classifies SPAC common stock subject to possible redemption as temporary equity, outside of permanent equity, and recognizes changes in redemption value immediately[65][66][68] - Marketable securities are measured at fair value using Level 1 market prices, totaling approximately $0.8 million at September 30, 2022, down from $1.5 million at December 31, 2021[57] - The company adopted ASU No. 2020-06, simplifying accounting for convertible instruments, with no impact on financial statements. It is evaluating ASU No. 2016-13 (Credit Losses) and does not expect a material impact[71][72] 3. RECENT REAL ESTATE TRANSACTIONS The company engaged in significant real estate transactions, acquiring 15 model homes and selling World Plaza and 25 model homes in 2022, alongside various acquisitions and dispositions in 2021 Recent Real Estate Transactions | Transaction Type | Period | Number of Properties | Value | Gain/(Loss) | | :--------------- | :----- | :------------------- | :---- | :---------- | | Acquisitions (Model Homes) | 9M 2022 | 15 | ~$8.1M | N/A | | Dispositions (Commercial) | 9M 2022 | 1 (World Plaza) | ~$10.0M | $(0.3M) loss | | Dispositions (Model Homes) | 9M 2022 | 25 | ~$13.5M | $4.3M gain | | Acquisitions (Model Homes) | 9M 2021 | 6 | ~$2.9M | N/A | | Acquisitions (Commercial) | 9M 2021 | 1 (Mandolin) | ~$4.9M | N/A | | Dispositions (Commercial) | 9M 2021 | 4 | ~$33.0M | $(0.7M) loss, $2.5M gain | | Dispositions (Model Homes) | 9M 2021 | 39 | ~$19.0M | $2.9M gain | 4. REAL ESTATE ASSETS The company's real estate portfolio as of September 30, 2022, comprised 8 office/industrial, 3 retail, and 82 model home properties, with total net assets decreasing due to the World Plaza sale - As of September 30, 2022, the company owned 8 office/industrial properties (756,112 sq ft), 3 retail shopping centers (65,242 sq ft), and 82 model home residential properties (253,124 sq ft)[78] Real Estate Assets Net Value (in thousands) | Asset Category | Sep 30, 2022 (Net Value in thousands) | Dec 31, 2021 (Net Value in thousands) | | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Presidio Property Trust, Inc. properties | $93,572,363 | $103,975,890 | | Model Home properties | $33,214,543 | $34,089,046 | | Total real estate assets and lease intangibles, net | $126,786,906 | $138,064,936 | - World Plaza was sold during the nine months ended September 30, 2022, and Grand Pacific Center is held for sale as of September 30, 2022[79][80] 5. LEASE INTANGIBLES Net lease intangible assets decreased to $104,920 by September 30, 2022, primarily due to amortization, with future expenses projected for 2022 and 2023 Lease Intangibles Net Value | Lease Intangible Type | Sep 30, 2022 (Net Value) | Dec 31, 2021 (Net Value) | | :-------------------- | :----------------------- | :----------------------- | | In-place leases | $62,608 | $161,482 | | Leasing costs | $42,312 | $95,689 | | Above-market leases | $0 | $0 | | Total Lease Intangibles, net | $104,920 | $257,171 | Future Amortization Expense | Year | Future Amortization Expense | | :--- | :-------------------------- | | 2022 | $50,091 | | 2023 | $17,526 | | 2024 | $17,526 | | 2025 | $15,670 | | 2026 | $4,107 | | Thereafter | $0 | | Total | $104,920 | 6. OTHER ASSETS Total other assets decreased to $3.9 million by September 30, 2022, primarily due to reduced marketable securities and accounts receivable, with the company utilizing covered call options Other Assets | Other Asset Type | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------- | :----------- | :----------- | | Deferred rent receivable | $1,537,252 | $1,660,197 | | Prepaid expenses, deposits and other | $808,331 | $473,554 | | Investment in marketable securities | $819,144 | $1,514,483 | | Accounts receivable, net | $203,768 | $401,927 | | Deferred offering costs | $116,855 | $134,843 | | Total other assets | $3,892,377 | $4,658,504 | - The company owns common shares of 16 publicly traded REITs and uses covered call options to increase total return, with a net fair value of $819,144 as of September 30, 2022[86] 7. MORTGAGE NOTES PAYABLE Total net mortgage notes payable increased to $94.1 million by September 30, 2022, driven by new loans for Baltimore and Mandolin properties, with a weighted-average interest rate of 4.40% Mortgage Notes Payable | Metric | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------- | :----------- | :----------- | | Mortgage Notes Payable, total net | $94,141,380 | $88,859,832 | | Presidio Property Trust, Inc. Properties (Subtotal) | $73,357,122 | $67,268,004 | | Model Home mortgage notes | $21,471,355 | $22,154,128 | | Weighted average interest rate (on outstanding debt) | 4.40% | 4.24% | - The mortgage note for 300 N.P. was paid in full on May 11, 2022. New mortgage loans were obtained for Baltimore ($5.67 million) and Mandolin ($3.65 million) properties[88][87] Total Principal Payments | Year | Total Principal Payments | | :--- | :----------------------- | | 2022 (remaining) | $2,539,623 | | 2023 | $8,661,693 | | 2024 | $20,334,528 | | 2025 | $31,095,552 | | 2026 | $16,719,855 | | Thereafter | $15,477,226 | | Total | $94,828,477 | 8. NOTES PAYABLE The company received a $150,000 EIDL in August 2020 and refinanced intercompany promissory notes for Mandolin and Baltimore properties with third-party bank loans in 2022 - Received a $150,000 EIDL in August 2020, accruing 3.75% interest, used for general corporate purposes related to COVID-19 economic injury[92] - Intercompany promissory notes for Mandolin ($1.56 million) and Baltimore ($5.65 million) properties were refinanced with third-party bank loans of $3.7 million and $5.67 million, respectively, in April and March 2022[94][95] 9. COMMITMENTS AND CONTINGENCIES The company has tenant improvement obligations, monitors financial market risks, sponsored Murphy Canyon Acquisition Corp. (SPAC) which raised $132.25 million in its IPO, and committed to fund SPAC extensions - The company is obligated to fund tenant improvements and is not currently subject to material litigation or environmental liabilities[96][97] - The company monitors financial market concerns including economic recession, COVID-19, interest rate increases, and geopolitical issues like the Russia-Ukraine conflict[98] - In January 2022, the company sponsored Murphy Canyon Acquisition Corp. (SPAC), which completed its IPO on February 7, 2022, raising $132.25 million. The SPAC aims to acquire real estate industry businesses (Proptech) with an enterprise value of $300 million to $1.2 billion within one year[99][101][102] - The company, through its Sponsor, purchased 754,000 placement units in the SPAC for $7.54 million and has committed to provide additional funds for SPAC extension payments if needed[101][100] 10. STOCKHOLDERS' EQUITY The company is authorized to issue 100 million Series A Common and 1 million Preferred shares, issued 920,000 Series D Preferred shares for $20.5 million in 2021, and initiated a new $10 million stock repurchase program in September 2022 - The company is authorized to issue up to 100,000,000 shares of Series A Common Stock and 1,000,000 shares of Preferred Stock[103][112] - In June 2021, 920,000 shares of 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock were issued, generating approximately $20.5 million in net proceeds[104] - Series D Preferred Stockholders are entitled to cumulative cash dividends of 9.375% per annum ($2.34375 per share), payable monthly. They have limited voting rights, primarily in cases of dividend default or adverse charter amendments[105][106][107] - The Series D Preferred Stock has a liquidation preference of $25.00 per share plus accumulated unpaid dividends and is redeemable by the company at $25.00 per share after June 15, 2026, or upon a Change of Control[108][110] - In September 2022, the Board authorized a new stock repurchase program of up to $6 million for Series A Common Stock and up to $4 million for Series D Preferred Stock[116] Stock Repurchases (9M 2022) | Stock Repurchases (9M 2022) | Shares Repurchased | Average Price Per Share | Total Cost | | :-------------------------- | :----------------- | :---------------------- | :--------- | | Series A Common Stock | 161,605 | ~$1.72 | $277,885 | | Series D Preferred Stock | 3,933 | ~$21.42 | $84,386 | Common Stock Dividends Declared | Common Stock Dividends Declared | 9M 2022 | 9M 2021 | | :------------------------------ | :------ | :------ | | March 31 | $0.105 | $0.101 | | June 30 | $0.106 | $0.102 | | September 30 | $0.020 | $0.103 | | Total | $0.231 | $0.306 | Preferred Stock Dividends Declared | Preferred Stock Dividends Declared | 9M 2022 | 9M 2021 | | :--------------------------------- | :------ | :------ | | Total | $1.75779 | $0.69010 | - The company distributed Series A Warrants in January 2022, allowing holders to purchase one common share at $7.00 for five years, with automatic conversion to 1/10 of a common share at expiration if unexercised[119] 11. SHARE-BASED INCENTIVE PLAN The company's restricted stock incentive plan, amended in May 2022 to increase available shares to 2.5 million, had 577,563 non-vested shares outstanding as of September 30, 2022, with $2.6 million in future compensation expense - The 2017 Incentive Award Plan was amended in May 2022, increasing available shares for issuance from 1.1 million to 2.5 million[124] Restricted Stock Activity | Restricted Stock Activity | Shares | | :------------------------ | :----- | | Balance at Dec 31, 2021 | 295,471 | | Granted | 402,839 | | Forfeited | (11,780) | | Vested | (108,967) | | Balance at Sep 30, 2022 | 577,563 | - Share-based compensation expense was approximately $0.9 million for the nine months ended September 30, 2022, with $2.6 million in future unrecognized compensation related to unvested shares[126] 12. SEGMENTS The company operates in Office/Industrial, Model Home, and Retail segments, with total NOI decreasing to $8.9 million in 9M 2022, and capital expenditures and acquisitions totaling $1.9 million and $8.1 million, respectively - The company's reportable segments are Office/Industrial Properties, Model Home Properties, and Retail Properties, with performance evaluated based on Net Operating Income (NOI)[127][128] Segment Net Operating Income (9 Months Ended Sep 30) | Segment NOI (9 Months Ended Sep 30) | 2022 | 2021 | Change | | :---------------------------------- | :--- | :--- | :----- | | Office/Industrial Properties | $5,639,018 | $5,860,871 | $(221,853) | | Model Home Properties | $2,048,936 | $2,422,444 | $(373,508) | | Retail Properties | $1,232,242 | $1,568,946 | $(336,704) | | Total Net Operating Income | $8,920,196 | $9,852,261 | $(932,065) | Capital Expenditures (9 Months Ended Sep 30) | Capital Expenditures (9 Months Ended Sep 30) | 2022 | 2021 | | :----------------------------------------- | :--- | :--- | | Acquisition of operating properties, net | $8,087,250 | $7,758,066 | | Capital expenditures and tenant improvements | $1,939,712 | $1,122,051 | | Total real estate investments | $10,026,962 | $8,880,117 | 13. SUBSEQUENT EVENTS Post-September 30, 2022, the company extended a loan agreement, acquired six model homes for $3.2 million, and its SPAC entered a Merger Agreement to acquire Conduit Pharmaceuticals Limited for $650 million - On October 12, 2022, the company's subsidiaries extended a loan agreement with First Horizon Bank through October 12, 2023, with the company guaranteeing up to 15% of the outstanding principal, interest, and fees[134][135][136] - On October 20, 2022, the company acquired six model homes for approximately $3.2 million ($1.0 million cash, $2.2 million mortgage loans)[137] - On November 8, 2022, Murphy Canyon (SPAC) entered a Merger Agreement to acquire Conduit Pharmaceuticals Limited for $650 million in Murphy Canyon Class A common stock (65,000,000 shares at $10.00 each), subject to SEC registration and stockholder approvals[138][139] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section offers management's analysis of financial condition and operations, covering forward-looking statements, COVID-19 impact, portfolio overview, transactions, detailed financial results, liquidity, and debt Forward-Looking Statements This section identifies forward-looking statements and outlines various risks that could cause actual results to differ materially from projections - The report contains forward-looking statements, identifiable by words like "will," "may," "believe," "anticipate," "intend," "estimate," "expect," "should," "project," "plan," and similar expressions[9][143] - Actual results could differ materially due to inherent risks in real estate investments, competition, demand for commercial space, tenant payment failures, challenging economic conditions, debt servicing ability, capital access, interest rate changes, uninsured losses, acquisition/disposition difficulties, reliance on third-party managers, COVID-19 impacts, and REIT qualification[10][12][143] Outlook The company assesses COVID-19's impact on operations, expects future effects on leasing and valuations, and focuses on portfolio growth through capital from recent sales - The COVID-19 pandemic did not significantly impact operating results during 2021 or the nine months ended September 30, 2022[146] - The company negotiated lease amendments with financially distressed tenants, including rent deferral or abatement, but no new negotiations were initiated in the first three quarters of 2022[146] - The company expects future impacts on leasing activity and asset valuation due to COVID-19 but does not anticipate a material impact on real estate rental revenue and cash collections from existing deferrals[146] - The company is focused on growing its portfolio using capital from Series D Preferred Stock and Series A Common Stock sales in 2021, and the sale of World Plaza in March 2022[146] OVERVIEW The company is a diversified REIT with a portfolio of office, industrial, retail, and model home properties, geographically diversified and focused on acquiring stabilized assets - The company is an internally-managed, diversified REIT with primary holdings in office, industrial, retail, and triple-net leased model home properties[147] - As of September 30, 2022, the portfolio includes 8 office/industrial properties (756,112 sq ft), 3 retail shopping centers (65,242 sq ft), and 82 model home residential properties (253,124 sq ft)[149] - Properties are geographically diversified across Colorado, North Dakota, Southern California, Texas, Maryland, Illinois, Texas, and Wisconsin[148] - The company acquires stabilized properties or those expected to stabilize within two to three years (80% occupancy for a full year or operating for three years)[148] - Most office and retail leases are 3-5 years with annual rental increases; model homes are typically 2-3 year triple-net leases[149] SIGNIFICANT TRANSACTIONS IN 2022 AND 2021 This section details the company's significant real estate acquisitions and dispositions in 2022 and 2021, including model homes and commercial properties Significant Real Estate Transactions | Transaction Type | Period | Number of Properties | Value | Gain/(Loss) | | :--------------- | :----- | :------------------- | :---- | :---------- | | Acquisitions (Model Homes) | 9M 2022 | 15 | ~$8.1M | N/A | | Dispositions (Commercial) | 9M 2022 | 1 (World Plaza) | ~$10.0M | $(0.3M) loss | | Dispositions (Model Homes) | 9M 2022 | 25 | ~$13.5M | $4.3M gain | | Acquisitions (Model Homes) | 9M 2021 | 6 | ~$2.9M | N/A | | Acquisitions (Commercial) | 9M 2021 | 1 (Mandolin) | ~$4.9M | N/A | | Dispositions (Commercial) | 9M 2021 | 4 | ~$33.0M | $(0.7M) loss, $2.5M gain | | Dispositions (Model Homes) | 9M 2021 | 39 | ~$19.0M | $2.9M gain | - Management does not expect the level of commercial property sales experienced over the last 24 months to continue and aims to increase the commercial property portfolio with new acquisitions, despite challenges from elevated real estate prices and compressing capitalization rates[156] CRITICAL ACCOUNTING POLICIES No material changes to critical accounting policies have occurred since the December 31, 2021 Annual Report on Form 10-K - No material changes to critical accounting policies since the December 31, 2021 Annual Report on Form 10-K[158] MANAGEMENT EVALUATION OF RESULTS OF OPERATIONS Management evaluates operating results based on cash flow generation for expenses and distributions, focusing on enhancing real estate value and reinvesting equity from property sales - Management evaluates operating results based on cash flow generation for operating expenses, general and administrative expenses, debt service, and stockholder distributions, giving less emphasis to non-cash charges like depreciation, amortization, and impairment[159] - The company focuses on increasing and enhancing the value, quality, and quantity of its real estate holdings, improving underperforming assets through re-leasing efforts, and selling properties lacking potential for value appreciation or cash flow to reinvest equity[160] RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 This section analyzes the company's revenues, costs, and net income for the three months ended September 30, 2022 and 2021, highlighting changes in key financial metrics Results of Operations (3 Months Ended Sep 30) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total Revenues | $4.4M | $4.4M | $0M | 0% | | Rental Operating Costs | $1.4M | $1.4M | $0M | 0% | | General and Administrative | $1.5M | $1.5M | $0M | 0% | | Depreciation and Amortization | $1.3M | $1.3M | $0M | 0% | | Interest Expense - mortgage notes | $1.4M | $1.0M | $0.4M | 39% | | Gain on Sale of Real Estate Assets, net | $1.3M | $0.6M | $0.7M | 117% | | Income allocated to non-controlling interests | $1.1M | $0.4M | $0.7M | 175% | - The increase in mortgage interest expense is due to an increase in mortgage debt, which totaled approximately $94.1 million at September 30, 2022, compared to $86.3 million at September 30, 2021[166] RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 This section analyzes the company's revenues, costs, and net income for the nine months ended September 30, 2022 and 2021, detailing changes and contributing factors Results of Operations (9 Months Ended Sep 30) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total Revenues | $13.3M | $14.9M | $(1.6M) | (11%) | | Rental Operating Costs | $4.4M | $4.7M | $(0.3M) | (6%) | | General and Administrative | $4.3M | $4.4M | $(0.1M) | (2%) | | Depreciation and Amortization | $4.0M | $4.1M | $(0.1M) | (2%) | | Asset Impairments | $0M | $0.3M | $(0.3M) | (100%) | | Interest Expense - mortgage notes | $3.5M | $3.5M | $(0.0M) | (0%) | | Income allocated to non-controlling interests | $3.0M | $1.8M | $1.2M | 67% | - The decrease in total revenues is primarily related to the sale of four commercial properties and 44 model homes during 2021, and the sale of World Plaza in March 2022[168] - G&A expenses included approximately $0.3 million in employee tax refunds from employee retention credits, offset by new formation, insurance, and operating costs related to Murphy Canyon (approximately $0.8 million)[170] Geographic Diversification Tables This section provides tables detailing the geographic diversification of the company's commercial and model home properties by number, square footage, and annual rent Commercial Properties Geographic Diversification | State (Commercial Properties) | No. of Properties | Approximate Square Feet | % of Square Feet | Current Approximate Annual Rent | % of Aggregate Annual Rent | | :---------------------------- | :---------------- | :---------------------- | :--------------- | :------------------------------ | :------------------------- | | California | 1 | 57,807 | 7.0% | $1,368,180 | 12.2% | | Colorado | 5 | 324,245 | 39.5% | $5,509,139 | 49.0% | | Maryland | 1 | 31,752 | 3.9% | $696,321 | 6.2% | | North Dakota | 4 | 397,050 | 48.3% | $3,335,210 | 29.7% | | Texas | 1 | 10,500 | 1.3% | $329,385 | 2.9% | | Total | 12 | 821,354 | 100.0% | $11,238,235 | 100.0% | Model Home Properties Geographic Diversification | Geographic Region (Model Home Properties) | No. of Properties | Aggregate Square Feet | % of Square Feet | Current Approximate Annual Rent | % Annual Rent | | :---------------------------------------- | :---------------- | :-------------------- | :--------------- | :------------------------------ | :------------ | | Midwest | 1 | 3,663 | 1.4% | $57,420 | 2.3% | | Northeast | 2 | 6,153 | 2.4% | $80,844 | 3.2% | | Southwest | 79 | 243,308 | 96.1% | $2,409,732 | 94.6% | | Total | 82 | 253,124 | 100% | $2,547,996 | 100% | LIQUIDITY AND CAPITAL RESOURCES This section outlines the company's anticipated liquidity sources, short-term needs, and confidence in funding operations and dividends for the next twelve months - Anticipated future liquidity sources include existing cash, cash flows from operations, refinancing, real estate sales, new borrowings, government aid, and equity/debt sales[177] - Cash and restricted cash totaled approximately $18.6 million at September 30, 2022[177] - Short-term liquidity needs include operating costs, debt service, tenant improvements, leasing commissions, and dividends. Future principal payments on mortgage notes for the remainder of 2022 total approximately $2.5 million, with $2.2 million related to model home properties[178] - The company believes cash on hand, cash flow from its portfolio, distributions from Model Home Partnerships, and 2022 property sales will fund operating costs, capital expenditures, and required dividends for at least the next twelve months[180] - The company authorized a new stock repurchase program in September 2022 for up to $6 million of Series A Common Stock and $4 million of Series D Preferred Stock[179] Cash Equivalents and Restricted Cash This section details cash and restricted cash balances, noting $1.0 million allocated for capital expenditures and an expected $1.1 million restricted reserve for Q4 2022 Cash, Cash Equivalents and Restricted Cash | Metric | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------- | :----------- | :----------- | | Cash, cash equivalents and restricted cash | $18.6M | $14.7M | | Restricted cash | $4.9M | $4.7M | - Approximately $1.0 million of cash balance is intended for capital expenditures on existing properties[184] - The company expects to place approximately $1.1 million in a restricted reserve account during Q4 2022 due to the non-renewal of a major tenant whose lease expires on December 31, 2022[184] Secured Debt This section details the company's secured debt for commercial and model home properties, including aggregate principal, number of collateralized properties, and weighted-average interest rates Secured Debt Overview (Sep 30, 2022) | Metric | Commercial Properties (Sep 30, 2022) | Model Home Properties (Sep 30, 2022) | | :------------------------------------- | :----------------------------------- | :----------------------------------- | | Aggregate Principal Amount | $73.4M | $21.5M | | Number of Properties Collateralized | 11 | 76 | | Weighted-Average Interest Rate | 4.53% | 3.95% | | Debt to Estimated Market Value | 59.8% | 56.2% | | Average Loan Balance per Home | N/A | ~$283,000 | - The company expects any new mortgages for property acquisitions in the near future to be at rates higher than its currently weighted average interest rate[186] Cash Flows for the nine months ended September 30, 2022 and September 30, 2021 This section summarizes the company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Cash Flow Summary (9 Months Ended Sep 30) | Cash Flow Category | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------- | :-------------------------- | :-------------------------- | | Operating Activities (Net Cash) | $1.9M | $1.1M | | Investing Activities (Net Cash) | $(123.8M) | $37.3M | | Financing Activities (Net Cash) | $125.8M | $(22.1M) | - The significant change in investing activities was primarily due to the $134.9 million investment of SPAC IPO proceeds into the trust account[188] - Financing activities were primarily driven by $132.3 million in proceeds from the public issuance of Murphy Canyon common stock[190] Off-Balance Sheet Arrangements This section details the company's off-balance sheet arrangements, specifically outlining various warrants outstanding, their exercise prices, and potential gross proceeds Warrants Outstanding (Sep 30, 2022) | Warrant Type | Shares Outstanding (Sep 30, 2022) | Exercise Price | Potential Gross Proceeds | | :-------------------------- | :-------------------------------- | :------------- | :----------------------- | | Common Stock Warrants | 2,000,000 | $5.00 | ~$10.0M | | Placement Agent Warrants | 80,000 | $6.25 | ~$0.5M | | Series A Warrants | 14,450,069 | $7.00 | ~$101.2M | Inflation The company's leases generally include provisions for rent increases, and net lease agreements help mitigate exposure to rising property expenses due to inflation - Leases generally provide for limited rent increases (fixed, CPI-linked, or sales-volume-based), which are expected to result in rent increases over time[197] - Net lease agreements reduce the company's exposure to rising property expenses due to inflation, as tenants are responsible for these costs[198] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Presidio Property Trust, Inc. is exempt from providing specific quantitative and qualitative market risk disclosures - As a smaller reporting company, the registrant is not required to provide disclosure pursuant to this item[199] ITEM 4. Controls and Procedures The company maintains effective disclosure controls and procedures, evaluated by management, including the CEO, CFO, and Chief Accounting Officer, as of September 30, 2022 - The company maintains disclosure controls and procedures designed for timely and accurate reporting of Exchange Act information[200] - Management, including the CEO, CFO, and Chief Accounting Officer, concluded that disclosure controls and procedures were effective as of September 30, 2022[201] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2022, nor were controls impacted by COVID-19 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2022[202] - Internal controls were not impacted by COVID-19 related circumstances, including remote work arrangements[202] PART II. OTHER INFORMATION This section includes information on legal proceedings, risk factors, unregistered equity sales, defaults on senior securities, and a list of filed exhibits Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently subject to any material litigation[203] Item 1A. Risk Factors No material changes to risk factors have occurred since the December 31, 2021 Annual Report on Form 10-K - No material changes to risk factors since the December 31, 2021 Annual Report on Form 10-K[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; however, the Board authorized a new $10 million stock repurchase program in September 2022 for Series A Common and Series D Preferred Stock - No unregistered sales of equity securities occurred[205] - On September 15, 2022, the Board authorized a new stock repurchase program for up to $6 million of Series A Common Stock and up to $4 million of Series D Preferred Stock, with a one-year term[205] Stock Repurchases This section details the company's stock repurchase activity for Series A Common Stock and Series D Preferred Stock in September 2022 Stock Repurchase Activity (Sep 2022) | Stock Repurchase (Sep 2022) | Shares Purchased | Average Price Per Share | Remaining Dollar Value Under Program | | :-------------------------- | :--------------- | :---------------------- | :----------------------------------- | | Series A Common Stock | 151,194 | $1.63 | $5,753,034 | | Series D Preferred Stock | 3,939 | $21.42 | $3,915,614 | Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities - No defaults upon senior securities[212] Item 4. Mine Safety Disclosures No information regarding mine safety disclosures is provided - No mine safety disclosures[213] Item 5. Other Information No other information is provided in this section - No other information is provided[214] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits include CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906) and Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)[215][218] Signatures The report was signed by Jack K. Heilbron (CEO), Adam Sragovicz (CFO), and Ed Bentzen (Chief Accounting Officer) on November 10, 2022 - The report was signed by Jack K. Heilbron (CEO), Adam Sragovicz (CFO), and Ed Bentzen (Chief Accounting Officer) on November 10, 2022[220]