PRESIDIO PROPERTY TRUST, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion should be read in conjunction with our
condensed consolidated financial statements and the notes thereto appearing in
Item 1 of this report and the more detailed information contained in our Annual
Report on Form 10-K for the year ended December 31, 2021 filed with the
Securities and Exchange Commission ("SEC") on March 30, 2022.



We can refer to the three months ended March 31, 2022 and March 31, 2021 as “Quarter 2022” and “Quarter 2021”, respectively.


Forward-Looking Statements



This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases, you can identify forward looking statements by the use of forward-looking
terminology such as "may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," or "potential" and/or the
negative of these words and phrases or similar words or phrases which are
predictions of or indicate future events or trends and also of which do not
relate solely to historical matters. Such statements involve known and unknown
risks, uncertainties, and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Currently, one of the most significant factors is
the potential adverse effect of COVID-19 and ensuing economic turmoil on the
financial condition, results of operations, cash flows and performance of the
Company, particularly our ability to collect rent, on the financial condition,
results of operations, cash flows and performance of our tenants, and on the
global economy and financial markets. The extent to which COVID-19 impacts the
Company and its tenants will depend on current and future developments, which
are highly uncertain and cannot be predicted with confidence, including the
scope, severity and duration of the pandemic, the actions taken to contain the
pandemic or mitigate its impact, and the direct and indirect economic effects of
the pandemic and containment measures, among others. Moreover, investors are
cautioned to interpret many of the risks identified in the risk factors
discussed in this 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on March 30, 2022, as well as the risks
set forth below, as being heightened as a result of the ongoing and numerous
adverse impacts of COVID-19. Additional factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements include, but are not limited to the risks associated
with the ownership of real estate in general and our real estate assets in
particular; the economic health of the metro regions where we conduct business;
the risk of failure to enter into/and or complete contemplated acquisitions and
dispositions, within the price ranges anticipated and on the terms and timing
anticipated; changes in the composition of our portfolio; fluctuations in
interest rates; reductions in or actual or threatened changes to the timing of
federal government spending; the risks related to use of third-party providers
and joint venture partners; the ability to control our operating expenses; the
economic health of our tenants; the supply of competing properties; shifts away
from brick and mortar stores to e-commerce; the availability and terms of
financing and capital and the general volatility of securities markets;
compliance with applicable laws, including those concerning the environment and
access by persons with disabilities; terrorist attacks or actions and/or risks
relating to information technology and cybersecurity attacks, loss of
confidential information and other related business disruptions; weather
conditions, natural disasters and pandemics; ability to maintain key personnel;
failure to qualify and maintain our qualification as a REIT and the risks of
changes in laws affecting REITs; and other risks and uncertainties detailed from
time to time in our filings with the SEC, including our 2021 Annual Report on
Form 10-K filed on March 30, 2022. While forward-looking statements reflect our
good faith beliefs, they are not guarantees of future performance. We undertake
no obligation to update our forward-looking statements or risk factors to
reflect new information, future events, or otherwise.



Outlook



On March 11, 2020, the World Health Organization declared COVID-19, a
respiratory illness caused by the novel coronavirus, a pandemic, and on March
13, 2020, the United States declared a national emergency with respect to
COVID-19. The COVID-19 pandemic caused state and local governments within our
areas of business operations to institute quarantines, "shelter-in-place"
mandates, including rules and restrictions on travel and the types of businesses
that may continue to operate. While certain areas have re-opened, others have
seen an increase in the number of cases reported, prompting local governments to
consider enforce further restrictions. We continue to monitor our operations and
government recommendations. On March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") was signed into law to provide widespread
emergency relief for the economy and to provide aid to corporations.



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The CARES Act includes several significant provisions related to taxes,
refundable payroll tax credits and deferment of social security payments. We
utilized certain relief options offered under the CARES Act and continue to
evaluate the relief options for us and our tenants available under the CARES
Act, as well as other emergency relief initiatives and stimulus packages
instituted by the federal government. Several of the relief options contain
restrictions on future business activities, which require careful evaluation and
consideration, such as restrictions on the ability to repurchase shares and pay
dividends. We will continue to assess these options, and any subsequent
legislation or other relief packages, including the accompanying restrictions on
our business, as the effects of the pandemic continue to evolve.



The effects of the COVID-19 pandemic did not significantly impact our operating
results during 2021 or the first quarter of 2022. We continue to monitor and
communicate with our tenants to assess their needs and ability to pay rent. We
have negotiated lease amendments with certain tenants who have demonstrated
financial distress caused by the COVID-19 pandemic, which have included or may
include rent deferral, temporary rent abatement, or reduced rental rates and/or
lease extension periods, however no new negotiations were initiated during the
first quarter of 2022. While these amendments have affected our short-term cash
flows, we do not believe they represent a change in the valuation of our assets
for the properties affected and have not significantly affected our results of
operations. Given the longevity of this pandemic and the potential for other
variants of the coronavirus, such as the delta variant, the COVID-19 outbreak
may materially affect our financial condition and results of operations going
forward, including but not limited to real estate rental revenues, credit
losses, leasing activity, and potentially the valuation of our real estate
assets. We do expect additional rent deferrals, abatements, and/or credit losses
from our commercial tenants during the remainder of 2022 and we do not expect
our existing rent deferrals, abatements, and/or credit losses to have a material
impact on our real estate rental revenue and cash collections. While we do
expect that the effects of the COVID-19 pandemic will impact our ability to
lease up available commercial space, our business operations and activities in
many regions may be subject to future quarantines, "shelter-in-place" rules, and
various other restrictions for the foreseeable future. Due to the uncertainty of
the future impacts of the COVID-19 pandemic, the extent of the financial impact
cannot be reasonably estimated at this time.  We are currently focused on
growing our portfolio with the recent capital raised from the sale of our 9.375%
Series D Cumulative Redeemable Perpetual Preferred Stock in June
2021 and our Series A Common Stock in July 2021.  For more information, see Part
II - Item 1A. Risk Factors and Part II - Item 7. Management's Discussion and
Analysis of Financial Conditions and Results of Operations in our Annual Report
on Form 10-K for the year ended December 31, 2021 filed with the SEC on March
30, 2022.



OVERVIEW



The Company operates as an internally managed, diversified REIT, with primary
holdings in office, industrial, retail, and triple-net leased model home
properties. In October 2017, we changed our name from "NetREIT, Inc." to
"Presidio Property Trust, Inc." The Company acquires, owns, and manages a
geographically diversified portfolio of real estate assets including office,
industrial, retail and model home residential properties leased to homebuilders
located in the United States. As of March 31, 2022, the Company owned or had an
equity interest in:


• Eight office buildings and one industrial building (“Office/Industrial

    Properties"), which totals approximately 755,862 rentable square feet;




  • Three retail shopping centers ("Retail Properties"), which total
    approximately 65,242 rentable square feet; and




  • 85 model home residential properties ("Model Homes" or "Model Home

Properties”), totaling approximately 260,144 square feet, leased on a

triple net basis to home builders who are owned by five affiliated limited liability companies

    partnerships and one wholly-owned corporation, all of which we control.




We own five commercial properties located in Colorado, four in North Dakota, one
in Southern California, one in Texas and one in Maryland. Our model home
properties are located in three states. While geographical clustering of real
estate enables us to reduce our operating costs through economies of scale by
servicing several properties with less staff, it makes us susceptible to
changing market conditions in these discrete geographic areas, including those
that have developed as a result of COVID-19. We do not develop properties but
acquire properties that are stabilized or that we anticipate will be stabilized
within two or three years of acquisition. We consider a property to be
stabilized once it has achieved an 80% occupancy rate for a full year as of
January 1 of such year or has been operating for three years.



Most of our office and retail properties are leased to a variety of tenants
ranging from small businesses to large public companies, many of which are not
investment grade. We have in the past entered into, and intend in the future to
enter into, purchase agreements for real estate having net leases that require
the tenant to pay all of the operating expense or pay increases in operating
expenses over specific base years. Most of our office leases are for terms of
three to five years with annual rental increases. Our model homes are typically
leased back for two to three years to the home builder on a triple-net
lease. Under a triple-net lease, the tenant is required to pay all operating,
maintenance and insurance costs and real estate taxes with respect to the leased
property.



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We seek to diversify our portfolio by commercial real estate segments, including
office, industrial, retail and model home properties to reduce the adverse
effect of a single under-performing segment and/or tenant. We further mitigate
risk at the tenant level through our credit review process, which varies by
tenant class. For example, our commercial and industrial tenants tend to be
corporations or individual owned businesses. In these cases, we typically obtain
financial records, including financial statements and tax returns (depending on
the circumstance), and run credit reports for any prospective tenant to support
our decision to enter into a rental arrangement. We also typically obtain
security deposits from these commercial tenants. Our Model Home commercial
tenants are well-known homebuilders with established credit histories. These
tenants are subjected to financial review and analysis prior to us entering into
a sales-leaseback transaction.



For more information regarding our common stock business, see footnote 10. Equity in section 1. Financial Statements.

SIGNIFICANT TRANSACTIONS IN 2022 AND 2021

Acquisitions during the three months ended March 31, 2022 :

• The Company acquired four model homes for approximately $2.4 million. the

the purchase price was paid in cash installments of approximately $0.7 million

    and mortgage notes of approximately $1.7 million.



Acquisitions during the three months ended March 31, 2021

  • The Company did not acquire any commercial properties or model homes.



Disposals during the three months ended March 31, 2022 :

Square of the worldwhich was sold on March 11, 2022during about $10.0

million and the Company recorded a loss of approximately $0.3 million.

• The Company sold 11 model homes for approximately $5.6 million and

    recognized a gain of approximately $1.8 million.



Disposals during the three months ended March 31, 2021

Waterman Squarewhich was sold on January 28, 2021during about $3.5

million and the Company recorded a loss of approximately $0.2 million.

• Garden Gateway, which was sold on February 19, 2021during about

    $11.2 million and the Company recognized a loss of approximately $1.4
    million.



• The Company sold 12 model homes for approximately $4.9 million and

    recognized a gain of approximately $0.4 million.




Management does not expect that the level of commercial property sales
experienced over the last 24 months to continue in the near future.
Additionally, with the recent equity raised in June and July 2021 and the
refinancing of our commercial properties during 2022, management is working to
increase the number of commercial properties in the portfolio with new
acquisitions.  However, elevated real estate prices in both commercial and
residential real estate and compressing capitalization rates have made it
challenging to acquire properties that fit our portfolio needs.  Management will
continue to evaluate potential acquisitions in an effort to increase our
portfolio of commercial real estate.



For details regarding our sponsorship of a special purpose acquisition company,
Murphy Canyon Acquisition Corp. ("Murphy Canyon"), see Note 9, Commitments and
Contingencies, to the Notes to the Condensed Consolidated Financial Statements
in "Part I, Item 1. Condensed Consolidated Financial Statements (Unaudited)" of
this Quarterly Report.



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CRITICAL ACCOUNTING POLICIES


There have been no material changes to our critical accounting policies, as previously disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2021 filed with the SECOND on March 30, 2022.

MANAGEMENT’S ASSESSMENT OF THE RESULTS OF OPERATIONS



Management's evaluation of operating results includes an assessment of our
ability to generate cash flow necessary to pay operating expenses, general and
administrative expenses, debt service and to fund distributions to our
stockholders. As a result, management's assessment of operating results gives
less emphasis to the effects of unrealized gains and losses and other non-cash
charges, such as depreciation and amortization and impairment charges, which may
cause fluctuations in net income for comparable periods but have no impact on
cash flows. Management's evaluation of our potential for generating cash flow
includes assessments of our recently acquired properties, our non-stabilized
properties, long-term sustainability of our real estate portfolio, our future
operating cash flow from anticipated acquisitions, and the proceeds from the
sales of our real estate assets.



In addition, management evaluates the results of the operations of our portfolio
and individual properties with a primary focus on increasing and enhancing the
value, quality and quantity of properties in our real estate holdings.
Management focuses its efforts on improving underperforming assets through
re-leasing efforts, including negotiation of lease renewals and rental rates.
Properties are regularly evaluated for potential added value appreciation and
cashflow and, if lacking such potential, are sold with the equity reinvested in
new acquisitions or otherwise allocated in a manner we believe is accretive to
our stockholders. Our ability to increase assets under management is affected by
our ability to raise borrowings and/or capital, coupled with our ability to
identify appropriate investments.



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED March 31, 2022 and 2021



Revenues. Total revenues were approximately $4.6 million for the three months
ended March 31, 2022 compared to approximately $5.7 million for the same period
in 2021, a decrease of approximately $1.1 million or 19%, which is primarily
related to the sale of four commercial properties and 44 model homes during
2021.  As of March 31, 2022, we had approximately $126.9 million in net real
estate assets, compared to approximately $145.3 million in real estate assets
at March 31, 2021.



Rental Operating Costs. Rental operating costs decreased by approximately $0.2
million to $1.6 million for the three months ended March 31, 2022, compared
to approximately $1.8 million for the same period in 2021. The overall decrease
in rental operating costs for the three months ended March 31, 2022 as compared
to 2021 is primarily related to the decrease in real estate assets note above,
as well as the mix of properties that were triple net lease, like Mandolin and
Baltimore as well as model homes, which have significantly lower operating costs
than non-triple net leased properties.



General and Administrative Expenses. General & Administrative ("G&A") expenses
for the three months ended March 31, 2022 and 2021 totaled approximately $1.6
million and $1.5 million, respectively.  These expenses increased only slightly
by approximately $0.1 million for the three months ended March 31, 2022 compared
to the same period in 2021 primarily due to new formation and operating
costs related to Murphy Canyon Acquisition and increased costs for audit, tax
and legal services.  These increases were offset by the reduction in overall
payroll costs. G&A expenses as a percentage of total revenue was 34.6% and
27.1% for three months ended March 31, 2022 and 2021, respectively.  The
increase in percentage is primarily due to a net decrease in rental income
related to the sale of properties noted above, while G&A remained relatively
flat, including the Murphy Canyon G&A expenses of approximately $0.3 million.

Depreciation and Amortization. Depreciation and amortization expense
was approximately $1.3 million for the three months ended March 31, 2022,
compared to approximately $1.4 million for the same period in 2021, representing
a decrease of approximately $0.1 million or 7%. The decrease in depreciation and
amortization expense in 2022 compared to the same period in 2021 is primarily
related to the sale of four commercial properties during 2021.

Asset Impairments. We review the carrying value of each of our real estate
properties quarterly to determine if circumstances indicate an impairment in the
carrying value of these investments exists. The Company did not recognize an
impairment during the three months ended March 31, 2022,  compared to an
impairment of  $0.3 million  during the three months ended March 31, 2021.


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Interest Expense - mortgage notes. Interest expense, including amortization of
deferred finance charges was approximately $1.0 million for the three months
ended March 31, 2022 compared to approximately $1.3 million for the same period
in 2021, a decrease of $0.3 million or 23%. The decrease in mortgage interest
expense relates to the decreased number of commercial properties owned in 2022
compared to 2021 and the related mortgage debt. The weighted average interest
rate on our outstanding debt was 4.3% and 3.9% as of March 31, 2022 and 2021,
respectively.



Interest expense - note payable. On September 17, 2019, the Company executed a
Promissory Note pursuant to which Polar Multi-Strategy Master Fund ("Polar"),
extended a loan in the principal amount of $14.0 million to the Company
(the "Polar Note"). The Polar Note bore interest at a fixed rate of 8% per annum
and required monthly interest-only payments. Interest expense, including
amortization of the deferred offering costs and Original Issue Discount
of approximately $1.4 million, totaled $0 and $0.9 million for the three months
ended March 31, 2022 and 2021, respectively.  The Polar Note was paid in full
during March 2021.



Gain on Sale of Real Estate Assets, net. The change in gain or loss on the sale
of real estate assets is dependent on the mix of properties sold and the market
conditions at the time of the sale. See "Significant Transactions in 2022 and
2021" above for further detail.



Earnings attributed to non-controlling interests. Earnings attributed to non-controlling interests for the three months ended March 31, 2022 and 2020 totaled approximately $1.2 million and $0.4 million.

Geographic diversification tables

The following tables present a list of commercial properties owned by the Company, grouped by state and geographic region as of March 31, 2022:


                                                  Aggregate                            Current         Approximate %
                                     No. of         Square        Approximate %      Base Annual       of Aggregate
State                              Properties        Feet        of Square Feet          Rent           Annual Rent
California                             1              57,807                 7.0 %   $  1,018,483                 9.4 %
Colorado                               5             324,245                39.5 %      5,679,250                52.5 %
Maryland                               1              31,752                 3.9 %        696,321                 6.4 %
North Dakota                           4             396,800                48.3 %      3,103,594                28.7 %
Texas                                  1              10,500                 1.3 %        329,385                 3.0 %
Total                                  12            821,104               100.0 %   $ 10,827,033               100.0 %




The following tables show a list of our Model Home properties by geographic
region as of March 31, 2022:



                                                                                          Current         Approximate
                                     No. of         Aggregate        Approximate %      Base Annual       of Aggregate
Geographic Region                  Properties      Square Feet      of Square Feet          Rent         % Annual Rent
Midwest                                1                  3,663                 1.4 %   $     57,420                2.2 %
Northeast                              2                  6,153                 2.4 %         80,844                3.2 %
Southwest                              82               250,328                96.2 %      2,416,092               94.6 %
Total                                  85               260,144                 100 %   $  2,554,356                100 %




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CASH AND CAPITAL RESOURCES


Overview



Our anticipated future sources of liquidity may include existing cash and cash
equivalents, cash flows from operations, refinancing of existing mortgages,
future real estate sales, new borrowings, financial aid from government programs
instituted as a result of COVID-19, and the sale of equity or debt securities.
Management believes that the number of recent real estate sales and resulting
cash generated may not be indicative of our future strategic plans.  We intend
to grow our portfolio with the recent capital raised from the sale of our Series
D Preferred Stock in June 2021 and our Series A Common Stock in July 2021 as
well are the sale of our commercial property World Plaza in March 2022.  Our
cash and restricted cash at March 31, 2022 was approximately $22.5 million. Our
future capital needs include paying down existing borrowings, maintaining our
existing properties, funding tenant improvements, paying lease commissions (to
the extent they are not covered by lender-held reserve deposits), and the
payment of dividends to our stockholders. We also are actively seeking
investments that are likely to produce income and achieve long-term gains in
order to pay dividends to our stockholders, and may seek a revolving line of
credit to provide short-term liquidity. To ensure that we can effectively
execute these objectives, we routinely review our liquidity requirements and
continually evaluate all potential sources of liquidity.



Our short-term liquidity needs include paying our current operating costs,
satisfying the debt service requirements of our existing mortgages, completing
tenant improvements, paying leasing commissions, and funding dividends to
stockholders.  Future principal payments due on our mortgage notes
payables during 2022, total approximately $ 9,737,270, of which $ 6,508,834 is
related to model home properties.  Management expects certain model home and
commercial properties will be sold, and that the underlying mortgage notes will
be paid off with sales proceeds, while other mortgage notes will be refinanced
as the Company has done in the past. Additional principal payments will be made
with cash flows from ongoing operations. On March 11, 2022, the Company
completed the sale our property World Plaza, located in San Bernardino, CA, for
$10 million to an unrelated third party.  This property was not encumbered by
any debt and net cash proceeds will be used for future cash needs.



On September 17, 2021, the Board of Directors authorized a stock repurchase
program of up to $10 million outstanding shares of our Series A Common Stock.
During September 2021, the Company was able to purchase 18,133 shares at an
average price of $3.73692 per share, plus commission of $0.035 per share, for a
total cost of $68,396.  During December 2021, the Company was able to purchase
11,588 shares at an average price of $3.6097 per share, plus commission of
$0.035 per share, for a total cost of $42,234.78.  These shares will be treated
as unissued in accordance with Maryland law and shown as a reduction of
stockholders' equity at cost.  While we will continue to pursue value creating
investments, the Board believes there is significant embedded value in our
assets that is yet to be realized by the market. Therefore, returning capital to
shareholders through a repurchase program is an attractive use of capital
currently.


There can be no assurance that the Company will refinance loans, take
out additional financing or capital will be available to the Company on
acceptable terms, if at all. If events or circumstances occur such that the
Company does not obtain additional funding, it will most likely be required to
reduce its plans or certain discretionary spending, which could have a material
adverse effect on the Company's ability to achieve its intended business
objectives. We believe that cash on hand, cash flow from our existing portfolio,
distributions from joint ventures in Model Home Partnerships and property sales
during 2021 will be sufficient to fund our operating costs, planned capital
expenditures and required dividends for at least the next twelve months. If our
cash flow from operating activities is not sufficient to fund our short-term
liquidity needs, we plan to fund a portion of these needs from additional
borrowings of secured or unsecured indebtedness, from real estate sales,
issuance of debt instruments, additional investors, or we may reduce the rate of
dividends to the stockholders.



Our long-term liquidity needs include proceeds necessary to grow and maintain
our portfolio of investments. We believe that the potential financing capital
available to us in the future is sufficient to fund our long-term liquidity
needs. We are continually reviewing our existing portfolio to determine which
properties have met our short- and long-term goals and reinvesting the proceeds
in properties with better potential to increase performance. We expect to obtain
additional cash in connection with refinancing of maturing mortgages and
assumption of existing debt collateralized by some or all of our real property
in the future to meet our long-term liquidity needs. If we are unable to arrange
a line of credit, borrow on properties, privately place securities or sell
securities to the public we may not be able to acquire additional properties to
meet our long-term objectives.



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The following is a summary of distributions declared per share of our Series A
Common Stock and for our Series D Preferred Stock for the three months ended
March 31, 2022 and 2021.  The Company intends to continue to pay dividends to
our common stockholders on a quarterly basis, and on a monthly basis for the
Series D Preferred stockholders going forward, but there can be no guarantee the
Board of Directors will approve any future dividends.



Series A Common Stock



Quarter Ended             2022                         2021
                 Distributions Declared       Distributions Declared
March 31        $                  0.105     $                  0.101
Total           $                  0.105     $                  0.101




Series D Preferred Stock



Month                2022                        2021
            Distributions Declared      Distributions Declared
January    $                0.19531     $                     -
February                    0.19531                           -
March                       0.19531                           -
Total      $                  0.586     $                     -




Our long-term liquidity needs include proceeds necessary to grow and maintain
our portfolio of investments. We believe that the potential financing capital
available to us in the future is sufficient to fund our long-term liquidity
needs. We are continually reviewing our existing portfolio to determine which
properties have met our short- and long-term goals and reinvesting the proceeds
in properties with better potential to increase performance. We expect to obtain
additional cash in connection with refinancing of maturing mortgages and
assumption of existing debt collateralized by some or all of our real property
in the future to meet our long-term liquidity needs. If we are unable to arrange
a line of credit, borrow on properties, issue debt instruments, privately place
securities or sell securities to the public we may not be able to acquire
additional properties to meet our long-term objectives.  In addition, the
ongoing COVID-19 pandemic may adversely impact our future operating cash flows
due to the inability of some of our tenants to pay their rent on time or at all
and the overall weakening of economic conditions that the pandemic may cause.
The COVID-19 pandemic may also make financing more difficult to obtain for us
and for prospective buyers of our properties, resulting in difficulty in selling
assets within our expected timeframe, or a decline in our expected sales price.



Cash equivalents and restricted cash

At March 31, 2022 and December 31, 2021, we had approximately and $14.7
million in cash equivalents, respectively, including and $4.7 million of
restricted cash, respectively. Our cash equivalents and restricted cash consist
of invested cash, cash in our operating accounts and cash held in bank accounts
at third-party institutions. During 2022 and 2021, we did not experience any
loss or lack of access to our cash or cash equivalents. Approximately $1.4
million of our cash balance is intended for capital expenditures on existing
properties (some of which is held in deposits reserve accounts by our lenders)
during the rest of year. We intend to use the remainder of our existing cash and
cash equivalents for asset/property acquisitions, reduction of principal debt,
general corporate purposes, common stock repurchases (if market conditions are
met), or dividends to our stockholders.

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Secured Debt



As of March 31, 2022, all our commercial properties had fixed-rate mortgage
notes payable in the aggregate principal amount of $72.6 million, collateralized
by a total of 11 commercial properties with loan terms at issuance ranging from
3 to 22 years. The weighted-average interest rate on these mortgage notes
payable as of March 31, 2022 was approximately 4.19%, and our debt to estimated
market value for our commercial properties was approximately 59.2%.  The debt to
estimated market value does not include the $1.6 million related party loan on
our Mandolin property in Houston, TX, which is eliminated in consolidation.



As of March 31, 2022, the Company had 78 fixed-rate mortgage notes payable
related to model homes in the aggregate principal amount of $20.9 million,
excluding loans eliminated through consolidation, collateralized by a total of
78 Model Homes. These loans generally have a term at issuance of three to five
years. As of March 31, 2022, the average loan balance per home outstanding and
the weighted-average interest rate on these mortgage loans are approximately
$268,000 and 3.53%, respectively. Our debt to estimated market value on these
properties is approximately 60.4%, excluding loans eliminated through
consolidation. The Company has guaranteed between 25% - 100% of these mortgage
loans.


We have been able to refinance maturing mortgages to extend maturity dates and have not experienced significant difficulty financing our acquisitions.

Cash flow for the three months ended March 31, 2022 and March 31, 2021



Operating Activities: Net cash used in operating activities for the three months
ended March 31, 2022 totaled approximately $1.0 million, as compared to cash
used in operating activities of $1.5 million for the three months ended March
31, 2021. The change in net cash used in operating activities is mainly due to
changes in net income, which fluctuates based on timing of receipt and payment,
as well as an increase in non-cash addbacks such as straight-line rent.



Investing Activities: Net cash used in investing activities for the three months
ended March 31, 2022 was approximately $122.3 million compared to
approximately $18.9 million provided by investing activities during the same
period in 2021. The change from each period was primarily related to the gross
cash invested into the trust account for Murphy Canyon Acquisition Corp.



We currently project that we could spend up to $1.4 million (some of which is
held in deposits reserve accounts by our lenders) on capital improvements,
tenant improvements and leasing costs for properties within our portfolio during
the rest of year. Capital expenditures may fluctuate in any given period subject
to the nature, extent, and timing of improvements required to the properties. We
may spend more on capital expenditures in the future due to rising construction
costs. Tenant improvements and leasing costs may also fluctuate in any given
year depending upon factors such as the property, the term of the lease, the
type of lease, the involvement of external leasing agents and overall market
conditions.



Financing Activities: Net cash provided by financing activities during the three
months ended March 31, 2022 was $131.1 million compared to $22.0 million used in
financing activities for the same period in 2021 and was primarily due to the
following activities for the three months ended March 31, 2022:



• Produces approximately $132.3 million from the public show for Murphy

Canyon Acquisition of Common Shares During the Three Months Ended March 31, 2022.

• Net decrease in repayment of mortgage notes payable totaling approximately

$14.0 million.

• Net increase in proceeds from mortgage notes payable totaling approximately

    $1.4 million.



These increases in cash flow from financing activities were offset by the following items:

• Net increase in the payment of deferred offering costs totaling approximately $3.1

million, primarily related to bid costs for the acquisition of Murphy Canyon.

Net increase in cash dividend payments to Series A common stockholders and

• Series D Preferred Shareholder of approximately $0.8 million (there was not

Series D Preferred Dividends in the Three Months Ended March, 31st2021).




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Contents

Off-balance sheet arrangements



On July 12, 2021, the Company entered into a securities purchase agreement with
a single U.S. institutional investor for the purchase and sale of 1,000,000
shares of its Series A Common Stock, Common Stock Warrants to purchase up to
2,000,000 shares of Series A Common Stock and Pre-Funded Warrants to purchase up
to 1,000,000 shares of Series A Common Stock. Each share of Common Stock and
accompanying Common Stock Warrants were sold together at a combined offering
price of $5.00, and each share of Common Stock and accompanying Pre-Funded
Warrant were sold together at a combined offering price of $4.99. The Pre-Funded
Warrants were exercised in full during August 2021 at a nominal exercise price
of $0.01 per share. The Common Stock Warrants have an exercise price of $5.50
per share, were exercisable upon issuance and will expire five years from the
date of issuance.



In connection with this additional offering, we agreed to issue the Placement
Agent Warrants to purchase up to 80,000 shares of Series A Common Stock,
representing 4.0% of the Series A Common Stock and shares of Series A Common
Stock issuable upon exercise of the Pre-Funded Warrants.  The Placement Agent
Warrants were issued in August 2021, post exercise of the Pre-Funded Warrants
with an exercise price of $6.25 and will expire five years from the date
of issuance.



Common Stock Warrants:

If all the potential Common Stock Warrants outstanding at March 31, 2022, were
exercised at the price of $5.00 per share, gross proceeds to us would be
approximately $10 million and we would as a result issue an additional 2,000,000
shares of common stock.



Placement Agent Warrants:

If all potential Placement Agent Warrants outstanding at March 31, 2022were exercised at the price of $6.25 per share, gross proceeds to us would be approximately $0.5 million and we would issue an additional 80,000 common shares as a result.



January 14, 2022 was the record date, with respect to the distribution of
five-year listed warrants (the "Series A Warrants").  The Series A Warrants and
the shares of common stock issuable upon the exercise of the Series A Warrants
were registered on a registration statement that was filed with the SEC and was
declared effective January 21, 2022. The Series A Warrants commenced trading on
the Nasdaq Capital Market under the symbol "SQFTW" on January 24, 2022 and were
distributed on that date to persons who held shares of common stock and existing
outstanding warrants as of the January 14, 2022 record date, or who acquired
shares of common stock in the market following the record date, and who
continued to hold such shares at the close of trading on January 21, 2022.  The
Series A Warrants give the holder the right to purchase one share of common
stock at $7.00 per share, for a period of five years. Should warrantholders not
exercise the Series A Warrants during that holding period, the Series A Warrants
will automatically convert to 1/10 of a common share at expiration, rounded down
to the nearest number of whole shares.



Series A Warrants:

If all potential Series A Warrants outstanding at March 31, 2022were exercised at the price of $7.00 per share, gross proceeds to us would be approximately $101.2 million and we would issue an additional 14,450,069 common shares as a result.


Inflation



Leases generally provide for limited increases in rent as a result of fixed
increases, increases in the consumer price index (typically subject to
ceilings), or increases in the clients' sales volumes. We expect that inflation
will cause these lease provisions to result in rent increases over time. During
times when inflation is greater than increases in rent, as provided for in the
leases, rent increases may not keep up with the rate of inflation.



However, our use of net lease agreements tends to reduce our exposure to rising
property expenses due to inflation because the client is responsible for
property expenses. Inflation and increased costs may have an adverse impact on
our clients if increases in their operating expenses exceed increases in
revenue.

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