Presidio Property Trust, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Presidio Property Trust fourth quarter 2021 earnings call. At this time, all participants are on enlisted only mode. If you would like to submit a question, please do so by using the ask question button on the webcast page. It is now my pleasure to turn the floor over to your host, Lowell Harcorn. Sir, the floor is yours.

Thank you, operator. Good afternoon, everyone. Welcome to Presidio Property Trust's fourth quarter 2021 earnings call. My name is Lowell Hartkorn, investor relations here at Presidio. And joining me on the call today are Jack Heilbrunn, our president and chief executive officer, Adam Sragovitz, chief financial officer, Gary Katz, chief investment officer, and Steve Hightower, president of our model home division. Jack, Adam, Gary, and Steve will make prepared remarks today, and then we'll be happy to take your questions via chat. At any time, you can click on the ask question button in the media player window to submit questions to our team. We will ask for your patience today as consistent with social distancing recommendations. Each of us from the company will be speaking from separate offices. Unless otherwise noted, comparisons made on this conference call will be between the 2021 year and the 2020 year. In addition, today's discussion will include forward-looking statements which are subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. So please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings press release which was issued and filed with our form 8K earlier today. As a reminder, this conference call will be made available for replay in the presentations area of the investor section of our website, www.presidiopt.com, where we will be also posting our prepared remarks following the conclusion of this call. With that, let me turn the call over to Jack Heilbrunn, our President and CEO. Jack?

Thank you, Lowell. Since we began our journey as a public company in October of 2020, we have used several opportunities to raise capital to take advantage of the market. In December, we announced the acquisition of a single tenant triple net property in Baltimore, which is 100% leased to John Hopkins Bloomberg School of Public Health. Gary will be able to tell you more details about the property, but taking a big picture look, the tenant fits right with our core strategy of being in markets and submarkets with a solid employment base, such as industry, government, or universities. Market opportunities also present themselves on the disposition side. Since we spoke with you last, we have sold the World Plaza Retail Center in San Bernardino, California. We have now accomplished our goal of selling all of our properties in California except for the Genesis Plaza, which is our headquarters in San Diego. California is a dynamic real estate market, but we believe that based on what we see currently, there are better investment returns to be had elsewhere. Being a public company has also given us the ability to reward shareholders. Everyone who was a shareholder on January 14th of this year received one warrant per share. These warrants now trade on the NASDAQ under the symbol SQFTW. They give the holders the right to buy our stock at $7 per share over the next five years. If at the end of five years the shareholders do not exercise the warrants, they will convert into one-tenth of a share of common stock, rounded down to the nearest number of whole shares. We think this is a great way to reward our shareholders, as well as to have them participate in our company's upside. In other news for shareholders, we sponsored a SPAC, which means we have launched a brand new company called Murphy Canyon Acquisition. This is to help bring a company public, most likely real estate related, If we are successful in this project, we believe our shareholdings in this company will create real value for the Presidio property shareholders. I will now turn the call over to Adam Sorgovich, our CFO, to share some of the financial highlights. Adam?

Thank you, Jack. Even though we sold four commercial properties in 2021, our core funds from operations, what we refer to as core FFO, our main measurement of cash flow, was up substantially in 2021 when compared to 2020. Core FFO was $2.5 million in 2021 versus $1.5 million in 2020. Among other factors, this illustrates how we are benefiting from the effect of lower interest expense in 2021, which was 45% lower than in 2020. Questions about the impact of COVID and the after effects of COVID on our business are often top of mind for Presidio property investors. For 2021, we collected slightly more than what we billed to our tenants. In other words, collecting more than 100% of what was billed in 2021. This was mostly driven by a few tenants making up for rent that was past due during 2020, and they have now bought their accounts current. As Jack mentioned, we believe that we can leverage our experience in raising capital in the capital markets with the SPAC that we sponsored. We paid for the cost to take the company public, and should we be successful in taking a candidate public using that vehicle, should provide CTO shareholders value with shares in that new public company. I'll pass the call now to Gary Katz to address leasing and property activity.

Thank you, Adam. We finished leasing strong in 2021. We executed 50 leases covering a total of about 217,000 square feet. Just over a third of these transactions represent new tenants, while the remainder consists of lease renewals or extensions. Activity year to date has also been brisk. and we currently have approximately 18 additional prospective lease transactions in the pipeline. We like what we see with current leasing demand. Our current office portfolio consists of properties in regions that are either high growth, such as Denver, or stable, such as Fargo. Our tenants have pretty much all returned to the office and so the limited effects of COVID we saw in 2021 we expect will continue. On the property sales front, during 2021, we sold three Colorado office properties and one California retail property, representing $33 million of transaction volume. As Jack mentioned, World Plaza was just sold, completing our exit from California retail. We constantly evaluate our portfolio for properties to sell when we believe stockholder value will be enhanced. Regarding acquisitions, our latest was the acquisition of a 30,000 square foot building that is 100% leased to the Bloomberg School of Public Health at Johns Hopkins University. It is a facility used for clinical research and support and is walking distance to Johns Hopkins Hospital. As Jack said, Baltimore was not on our initial radar for target markets, but when we saw that this is a mission critical facility for an investment grade tenant, we jumped at the opportunity. I'll pass the call now over to Steve Hightower, who will cover activity in the model home division.

Thank you, Gary. In 2021, we sold 44 model homes for approximately $21 million, and we recognized a gain of about $3 million. During the year, we acquired 18 model home properties and leased them back to the home builders under triple net leases. The purchase price for the properties was approximately $8 million. We recently acquired four more model home properties consistent with our historical strategy and approach. As expected, in 2021 we saw fewer model home acquisitions than 2020. However, we are seeing builders returning to our program as the rate of price growth begins to slow. We have survived many cycles in the past by buying well and appraising carefully, and that should serve us well in this cycle as well. I will pass the call now to Adam to answer questions from our listeners.

Thank you, Steve. We'll now take some questions from our listeners. If you've not already done so, please click on the Ask Question button in your media player window if you would like to submit a question. First question here is for Jack Heilbronn. How much will you make from your shares in SPAC if it is successful?

That depends on the negotiations with the target company. It could be as much as 30 to 40% of our total equity, or it could be more. We really won't know the answer to that question until the negotiations are finalized and the shareholders of the SPAC have voted to approve the acquisition of the target company.

Got it. Thank you. Next question here I think is for Gary Katz. What kinds of properties specifically are you looking at for new acquisitions?

We're going to continue the strategy that we embarked on last year where given where we are in the real estate cycle and the economic cycle with the pandemic bolstering all of that. Our focus is on yield-driven, stable, longer-term lease properties with little capital expense exposure and little lease rollover expense. we're looking at a diversified property type. It could be industrial, it could be office, it could be retail. The most important thing for us right now is generating cash flow with some stability.

Got it. Thank you. I think the next question is probably for you as well. If there were to be another lockdown in 2022, How much of an effect do you think it would have on the Presidio property portfolio?

Well, historically, looking at the last lockdown, I believe we had 13 tenants out of our portfolio of over 200 tenants who requested some sort of assistance on rent, some deferral or such. We got out of that... relatively unscathed, we were able to get concessions from tenants in return for a temporary rent break. And if we assume that that's the worst case and we have another lockdown in the future, I would expect that given the diversification of our tenants' businesses that we would have no worse of a situation than we already had.

Great. Next question I have, the last one. In the queue is for Jack Heilbron. Do you have plans to raise more capital, and what can we expect?

We always are looking at the capital markets, and we'll take advantage of opportunities. Our plan is to continuously grow through smart acquisitions, so we will raise more capital when the time is right and the markets are favorable.

Great, I will now pass the call over to Lowell Hardcorn to conclude.

Okay, thank you, Adam. This concludes Presidio's fourth quarter 2021 earnings call. Please be sure to visit our website at www.presidiopt.com as in property trust. and click on the investor section to stay up to date on our press releases and SEC filings. We have also posted supplemental financial information there in addition to what we filed with the SEC. Thanks everyone for taking the time to join us today and to those listening to the recording. And we look forward to visiting with you again on our first quarter 2022 conference call, which we expect to have in May of 2022. Thank you for listening.

Thank you, ladies and gentlemen. This does conclude today's conference call and webcast. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.