SQFT: Continuing to Advance Model Home Strategy & Extend Debt Maturities

By M. Marin

NASDAQ:SQFT

READ THE FULL SQFT RESEARCH REPORT

Portfolio additions continue…

Presidio Property Trust SQFT continued to refresh its real estate portfolio in 1H22. SQFT divested 18 model homes for an aggregate gain of about $3.0M. The company reinvested in the model home category, acquiring 8 model homes during the period. The company also sold World Plaza for roughly $10.0 million, incurring a roughly $0.3M loss.

…as lease demand & rental collections remain strong

SQFT signed a new lease with DISH Wireless at its Genesis Plaza office building in San Diego and began tenant improvements for DISH. This new lease raised the occupancy at Genesis Plaza to 96%. The company believes this reflects strong leasing demand and activity across its overall real estate portfolio.

The company collected 98% of total tenant billings, including 100% collections in the model home category. Presidio signed 16 office, retail, and industrial leases in 1H22, of which seven were with new tenants, including the above noted new DISH lease, and nine were renewals with existing tenants.

Financial flexibility enhanced, as debt maturities extended, cash balance strengthened

SQFT has fully repaid its loan on its 300 NP office property in North Dakota, maintaining its strategy of opportunistically deleveraging the balance sheet. With this repayment, SQFT eliminated 2022 debt maturities and has no major debt maturities before mid-2024. The company had cash & equivalents and restricted cash of $21.1 million at the end of 2Q22, up from $14.7 million at year-end 2021. We believe the cash position and extended debt maturities enhance SQFT's financial flexibility.

The company's strategy to strengthen its balance sheet enables SQFT to focus on growing and upgrading its real estate portfolio, depending on market conditions. However, given the interest rate environment and higher real estate prices, it would not surprise us if acquisition activity slowed in the near-term.

SPAC opportunity – MURF could create upside for SQFT

Separately, SQFT's sponsored special purpose acquisition company (SPAC), Murphy Canyon Acquisition Corp. (MURF), is evaluating potential acquisition candidates in the real estate industry and targets its initial business combination (IBC) within the first year following its 1Q22 IPO, depending on market conditions.

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