10-Q: Presidio Property Trust Q3 2025: Sales & Impairments Impact Results

Presidio Property Trust reports a net loss of $1.29 million for Q3 2025, driven by property sales, impairments, and reduced G&A expenses.

Summary

• Net loss attributable to common stockholders for the three months ended September 30, 2025, was $(1,862,027), a significant improvement from $(6,645,466) in the same period of 2024.
• Net loss attributable to common stockholders for the nine months ended September 30, 2025, was $(6,026,871), compared to $(24,800,532) for the same period in 2024.
• Total revenues for the three months ended September 30, 2025, were approximately $4.2 million, down from $4.7 million in Q3 2024.
• Total revenues for the nine months ended September 30, 2025, were approximately $12.7 million, down from $14.1 million in the same period in 2024.
• Real estate assets, net, decreased to $113.3 million as of September 30, 2025, from $127.6 million as of December 31, 2024.
• Two commercial properties, Union Town Center and Research Parkway, were sold in February 2025 for approximately $15.9 million, resulting in a net gain of $4.5 million.
• Sixteen model homes were sold for approximately $7.4 million, generating a gain of $0.6 million.
• Twenty-two model homes were acquired for approximately $9.4 million, funded by $2.8 million in cash and $6.6 million in mortgage notes.
• Non-cash impairment charges totaled approximately $4.4 million for the nine months ended September 30, 2025, including $3.3 million for Dakota Center and $0.9 million for Shea Center II.
• Mortgage notes payable, net, decreased to $93.7 million as of September 30, 2025, from $102.1 million as of December 31, 2024.
• The weighted average interest rate on outstanding debt increased to 6.17% as of September 30, 2025, from 5.44% as of September 30, 2024.
• A 1-for-10 reverse stock split was effected on May 19, 2025.
• A fixed price self-tender offer for Series A common stock purchased 214,412 shares for approximately $1.46 million.
• A registered direct offering of Series A Common Stock and pre-funded warrants raised approximately $1.7 million in net proceeds.
• Warrants to purchase 200,000 shares of Series A Common Stock had their exercise price reduced to $12.00 from $55.00 and their termination date extended to July 16, 2030.
• Dividends for Series D Preferred Stock were declared for October, November, and December 2025 at $0.19531 per share; no common stock dividends were declared.
• The Dakota Center loan matured on July 6, 2024, and is in default; a purchase offer for $5,125,000 was approved in July 2025, with the sale expected in Q4 2025 or Q1 2026.
• The Shea Center II loan matures in January 2026, and management is exploring refinancing, restructuring, or sale options.

Sentiment

Score: 4

Explanation: While the net loss decreased significantly year-over-year, this was largely due to substantial prior-year losses from Conduit Pharmaceuticals and property sales. Current revenues are down, and the company faces ongoing challenges with property impairments, increasing interest rates, and maturing debt, particularly the defaulted Dakota Center loan and the upcoming Shea Center II maturity. The capital raise and stock repurchase program indicate active management of capital structure but also highlight liquidity considerations.

Positives

• Net loss attributable to common stockholders significantly decreased for both the three months (to $(1,862,027) from $(6,645,466)) and nine months (to $(6,026,871) from $(24,800,532)) ended September 30, 2025, compared to the prior year.
• A net gain of approximately $4.5 million was recognized from the sale of two commercial properties (Union Town Center and Research Parkway) in February 2025.
• A net gain of approximately $0.6 million was recognized from the sale of 16 model homes.
• General and administrative expenses decreased by approximately $1.6 million for the nine months ended September 30, 2025, primarily due to reduced consulting and legal fees, and lower accruals for board fees, income tax preparation, and company-wide bonus.
• Mortgage loans on West Fargo Industrial, Genesis Plaza, and One Park Center properties were successfully refinanced.
• The fixed price self-tender offer for Series A common stock provided liquidity to stockholders and increased the relative ownership percentage for non-participating stockholders.
• A registered direct offering of Series A Common Stock and pre-funded warrants successfully raised approximately $1.7 million in net proceeds for working capital and potential acquisitions.
• The exercise price of certain Series A Common Stock Warrants was reduced to $12.00 from $55.00, and their termination date was extended to July 16, 2030, potentially making them more attractive for exercise.
• Management believes that the combination of working capital on hand and the ability to refinance commercial and model home mortgages will fund operations for at least the next twelve months.

Negatives

• Total revenues decreased for both the three months (to $4.2 million from $4.7 million) and nine months (to $12.7 million from $14.1 million) ended September 30, 2025, compared to the prior year, primarily due to decreased commercial real estate rental income from property sales and lower model home rental income.
• Significant non-cash impairment charges totaling approximately $4.4 million were recognized for the nine months ended September 30, 2025, including $3.3 million for Dakota Center and $0.9 million for Shea Center II.
• The Dakota Center loan matured on July 6, 2024, and is in default, incurring a default interest rate of 5% above the original rate and lender expenses.
• The sale of Dakota Center is expected to be a short sale, including a discount payoff for the non-recourse loan, indicating a loss on the asset.
• The Shea Center II loan matures in January 2026, and there is no guarantee of successful refinancing, restructuring, or sale.
• The weighted average interest rate on outstanding debt increased to 6.17% as of September 30, 2025, from 5.44% as of September 30, 2024, leading to higher debt service costs.
• A net loss in Conduit Pharmaceuticals marketable securities of $0.2 million was recorded for the nine months ended September 30, 2025, following a $17.8 million loss in the prior year.
• No cash dividends were declared on Series A Common Stock for the nine months ended September 30, 2025, or 2024.
• The company's geographical clustering of real estate makes it susceptible to changing market conditions in discrete geographic areas.
• Model home impairment charges were attributed to an abnormally short hold period (less than two years) and the builder changing their product style.

Risks

• Inherent risks associated with real estate investments and the real estate industry.
• Significant competition may decrease or prevent increases in property occupancy and rental rates, and may reduce property values.
• A decrease in demand for commercial space and model homes, and/or an increase in operating costs.
• Failure by any major tenant (or a substantial number of tenants) to make rental payments, early termination, non-renewal, or renewal on less favorable terms.
• Challenging economic conditions facing the company and its tenants may materially adversely affect financial condition and results of operations.
• Failure to generate sufficient cash to pay dividends and to service or retire debt obligations in a timely manner.
• Inability to borrow or raise sufficient capital to maintain or expand the real estate investment portfolio.
• Adverse changes in real estate financing markets, including potential increases in interest rates and/or borrowing costs.
• Potential losses from adverse weather conditions, natural disasters, and title claims may not be covered by insurance.
• Inability to complete acquisitions or dispositions, and failure to successfully operate acquired properties or sell properties without incurring significant defeasance costs.
• Reliance on third-party property managers and brokers/agents to lease properties.
• Decrease in supply and/or demand for single-family homes, inability to acquire additional model homes, and increased competition to buy such properties.
• Failure to continue to qualify as a REIT.
• Adverse results of any legal proceedings.
• Changes in laws, rules, and regulations affecting the business, including taxation, tariffs, real estate, zoning laws, and increases in real property tax rates.
• The possibility of losing deposits over federally insured levels if banking institutions fail.
• The possibility of not complying with Nasdaq listing requirements, which may result in common stock being delisted, affecting market price, liquidity, and ability to raise capital.
• Actions of activist stockholders may cause substantial costs, divert management's attention and resources, and have an adverse effect on the business.
• Potential adverse effects of a resurgence of the COVID-19 pandemic or new epidemics, pandemics, or public health crises and ensuing economic turmoil on financial condition, results of operations, cash flows, and performance, particularly the ability to collect rent.
• Adverse economic conditions in the real estate market and overall financial market fluctuations.
• Geographical clustering of real estate makes the company susceptible to changing market conditions in discrete geographic areas.
• There can be no guarantee of successful refinancing for the Shea Center II loan which matures in January 2026.
• Rising construction costs may lead to increased capital expenditures in the future.
• There can be no guarantee that the Board of Directors will approve any future dividends for Series D Preferred Stock.
• The company has not decided when it will resume dividends to common stockholders on a quarterly basis.

Future Outlook

Management expects rental operating costs to continue to decrease year over year at December 31, 2025, due to recent property sales, but acknowledges they could increase if additional properties are purchased. The company anticipates that any new mortgages used to acquire commercial properties or model homes in the near future will be at rates higher than the current weighted average interest rate. Management believes that current working capital and the ability to refinance commercial and model home mortgages will fund operations for at least the next twelve months. Discussions have begun with lenders to restructure, extend, or refinance three other loans, with potential property sales if these efforts are unsuccessful. The company projects spending up to $2.7 million on capital improvements, tenant improvements, and leasing costs over the next 12 months, noting that capital expenditures may fluctuate due to rising construction costs. Cash permitting, the company intends to continue monthly dividends to Series D Preferred Stockholders, but there is no guarantee, and no decision has been made on resuming quarterly dividends to common stockholders.

Management Comments

• "Management believes that the combination of working capital on hand and the ability to refinance commercial and model home mortgages will fund operations through at least the next twelve months from the date of the issuance of these unaudited interim financial statements."
• "Management expects certain model home properties can be sold, and that the underlying mortgage notes will be paid off with sales proceeds while other mortgage notes can be refinanced, as the Company has historically been able to do in the past with all model home properties."
• "While we will continue to pursue value creating investments, the Board of Directors believes there is significant embedded value in our assets that is yet to be realized by the market. Therefore, returning capital to stockholders through a repurchase program is an attractive use of capital currently."
• "We believe that the tender offer provided an efficient mechanism to provide our stockholders who desired immediate liquidity with the opportunity to tender shares at a favorable price relative to the current market price and without incurring brokers fees associated with most secondary market sales, while also providing a benefit to those stockholders who did not participate, as such stockholders automatically increased their relative percentage ownership interest in the Company and our future operations, including any liquidity events that we may have in the future."
• "Overall, we believe that the Offer was a prudent use of our financial resources given our business profile, capital structure, assets and liabilities."
• "Cash permitting, the Company intends to continue to pay dividends on a monthly basis to holders of our Series D Preferred Stock going forward, but there can be no guarantee the Board of Directors will approve any future dividends."
• "The Company has not decided when it will resume dividends to our common stockholders on a quarterly basis."

Industry Context

Presidio Property Trust operates as a diversified REIT, holding office, industrial, retail, and model home properties. The company's performance is influenced by broader real estate market fluctuations, including concerns over economic recession, rising interest rates, trade wars, labor shortages, and inflation. Geopolitical conflicts in the Middle East and Ukraine are noted as potential factors impacting commercial real estate fundamentals, such as occupancy, rental rates, and property values. The company's strategy of actively managing its portfolio through sales of underperforming assets and reinvestment is a common approach in the REIT sector to optimize value. The model home segment faces specific challenges related to builder product style changes and short hold periods, highlighting its sensitivity to residential market trends. The increase in the company's weighted average interest rate on debt reflects the broader market trend of rising borrowing costs.

Comparison to Industry Standards

• The company explicitly states that its use of the term Net Operating Income (NOI) may not be comparable to that of other real estate companies due to differing methodologies.
• Most of the company's office and retail properties are leased to a variety of tenants, many of whom are not investment grade, which could imply a higher tenant credit risk profile compared to REITs focused on investment-grade tenants.
• Model Home commercial tenants are described as well-known homebuilders with established credit histories, suggesting a more stable tenant base within this specific segment.
• The company does not provide specific comparable companies, projects, or results to global benchmarks within the filing.

Management Changes

Corporate Governance

Legal Proceedings

• No material litigation or threatened litigation is currently subject to the company or its properties.

Related Party Transactions

• Leased portions of corporate headquarters to Puppy Toes, Inc. (owned by CEO Jack Heilbron and his wife) and Centurion Counsel, Inc. (owned by Puppy Toes, Inc.). Rent billed totaled $3,411 for Q3 2025 and $10,166 for the nine months ended September 30, 2025.
• Received full payroll reimbursement for employee services provided to Centurion Counsel and Puppy Toes, Inc., totaling approximately $69,913 for the nine months ended September 30, 2025.
• Paid Larry Dubose (former officer and director, father-in-law of Steve Hightower, President of Model Home Division) $37,500 in consulting fees for the nine months ended September 30, 2025.
• A trust controlled by Mr. Dubose received $8,419 in pro-rata distributions and return of capital payments from Model Home Partnerships for the nine months ended September 30, 2025.

Stakeholder Impact

• **Shareholders (Common Stock):** No dividends declared, a 1-for-10 reverse stock split, a fixed price tender offer, and a registered direct offering have impacted ownership structure and liquidity. Property impairments and debt issues could negatively affect share value.
• **Shareholders (Preferred Stock):** Monthly dividends continue to be paid, but future payments are not guaranteed. A stock repurchase program provides some liquidity for preferred shareholders.
• **Employees:** The amended 2017 Incentive Award Plan provides for equity-based compensation, which can aid in attraction and retention.
• **Lenders:** The Dakota Center loan is in default, and the Shea Center II loan is maturing, indicating potential for renegotiations, restructurings, or asset sales. The increase in weighted average interest rates on debt affects borrowing costs for the company.
• **Tenants:** The expiration of the Halliburton lease at Shea Center II requires management to actively seek new tenants. Model home impairments were partly attributed to builder changes, affecting those relationships.
• **Customers (Homebuilders):** Model home properties are leased on a triple-net basis, which shifts operating expense responsibility to the homebuilders, reducing the company's direct exposure to these costs.

Next Steps

• Management is reviewing various options for the Shea Center II loan maturity (January 2026), including refinancing, restructuring, or selling the property.
• The sale of the Dakota Center property is expected to take place during the fourth quarter 2025 or in the first quarter of 2026.
• Management expects certain model home properties to be sold, with underlying mortgage notes paid off, while others will be refinanced.
• The company projects spending up to $2.7 million on capital improvements, tenant improvements, and leasing costs for properties within its portfolio during the next 12 months.
• The company intends to continue monthly dividends to Series D Preferred Stockholders, cash permitting.
• The company has not decided when it will resume dividends to common stockholders.
• The stock repurchase program for Series A Common Stock and Series D Preferred Stock expires in December 2025.
• The Strategic Planning and Cyber Committee will continue to assist the Board in oversight of business strategy, make recommendations, and assist with cybersecurity risk management.

Key Dates

Recommendation

The company faces significant headwinds including declining revenues, substantial property impairments, and maturing debt obligations with increased interest rates. While management is actively addressing these issues through property sales, refinancing, and capital raises, the uncertainty surrounding the Dakota Center short sale and the Shea Center II loan maturity presents considerable risk. The reduction in net loss is positive but largely driven by the absence of prior-year large losses from Conduit Pharmaceuticals rather than core operational improvements. The lack of common stock dividends and the increased debt costs suggest a cautious approach is warranted. Investors should hold and monitor the resolution of the Dakota Center and Shea Center II situations, as well as the company's ability to stabilize revenues and manage its debt portfolio in a rising interest rate environment.

Keywords

REIT, real estate, commercial property, model homes, financial results, Q3 2025, property sales, impairments, debt, refinancing, stock repurchase, dividends, Nasdaq, SEC filing, Sarbanes-Oxley Act