PRESIDIO PROPERTY TRUST, INC. 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onMarch 30, 2022 .
We may refer to the three months ended
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 endedDecember 31, 2021 , filed with theSEC onMarch 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 theSEC , including our 2021 Annual Report on Form 10-K filed onMarch 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 OnMarch 11, 2020 , theWorld Health Organization declared COVID-19, a respiratory illness caused by the novel coronavirus, a pandemic, and onMarch 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. OnMarch 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. 28
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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 tenantswho 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 inJune 2021 and our Series A Common Stock inJuly 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 endedDecember 31, 2021 filed with theSEC onMarch 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. InOctober 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 inthe United States . As ofMarch 31, 2022 , the Company owned or had an equity interest in:
• Eight office buildings and One industrial property ("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 HomeProperties"), totaling approximately 260,144 square feet, leased back on a
triple-net basis to homebuilders that are owned by five affiliated limited
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 additional information regarding our Common Stock activity, see Footnote 10. Stockholders' Equity in Item 1. Financial Statements.
SIGNIFICANT TRANSACTIONS IN 2022 AND 2021
Acquisitions during the three months ended
• The Company acquired four model homes for approximately
purchase price was paid through cash payments of approximately
and mortgage notes of approximately $1.7 million .
Acquisitions during the three months ended
• The Company did not acquire any commercial properties or model homes.
Dispositions during the three months ended
•
million and the Company recognized a loss of approximately
• The Company disposed of 11 model homes for approximately
recognized a gain of approximately $1.8 million .
Dispositions during the three months ended
•
million and the Company recognized a loss of approximately
• Garden Gateway, which was sold on
$11.2 million and the Company recognized a loss of approximately$1.4 million .
• The Company disposed of 12 model homes for approximately
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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Table of Contents 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
MANAGEMENT EVALUATION OF 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
Revenues. Total revenues were approximately$4.6 million for the three months endedMarch 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 ofMarch 31, 2022 , we had approximately$126.9 million in net real estate assets, compared to approximately$145.3 million in real estate assets atMarch 31, 2021 . Rental Operating Costs. Rental operating costs decreased by approximately$0.2 million to$1.6 million for the three months endedMarch 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 endedMarch 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 andBaltimore 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 endedMarch 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 endedMarch 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 endedMarch 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 endedMarch 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 endedMarch 31, 2022 , compared to an impairment of$0.3 million during the three months endedMarch 31, 2021 . 31
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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 endedMarch 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 ofMarch 31, 2022 and 2021, respectively. Interest expense - note payable. OnSeptember 17, 2019 , the Company executed a Promissory Note pursuant to whichPolar 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 endedMarch 31, 2022 and 2021, respectively. The Polar Note was paid in full duringMarch 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.
Income allocated to non-controlling interests. Income allocated to
non-controlling interests for the three months ended
Geographic Diversification Tables
The following tables show a list of commercial properties owned by the Company
grouped by state and geographic region as of
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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LIQUIDITY 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 inJune 2021 and our Series A Common Stock inJuly 2021 as well are the sale of our commercial propertyWorld Plaza inMarch 2022 . Our cash and restricted cash atMarch 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. OnMarch 11, 2022 , the Company completed the sale our propertyWorld Plaza , located inSan 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. OnSeptember 17, 2021 , the Board of Directors authorized a stock repurchase program of up to$10 million outstanding shares of our Series A Common Stock. DuringSeptember 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 . DuringDecember 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 withMaryland 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. 33
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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 endedMarch 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
AtMarch 31, 2022 andDecember 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. 34
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Table of Contents Secured Debt As ofMarch 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 ofMarch 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 inHouston, TX , which is eliminated in consolidation. As ofMarch 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 78Model Homes . These loans generally have a term at issuance of three to five years. As ofMarch 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 we have not experienced any notable difficulties financing our acquisitions.
Cash Flows for the three months ended
Operating Activities: Net cash used in operating activities for the three months endedMarch 31, 2022 totaled approximately$1.0 million , as compared to cash used in operating activities of$1.5 million for the three months endedMarch 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 endedMarch 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 endedMarch 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 endedMarch 31, 2022 :
• Proceeds of approximately
Canyon Acquisition common stock during the three months ended
• Net decrease in repayment of mortgage notes payable totaling approximately
• Net increase in proceeds from mortgage notes payable totaling approximately
$1.4 million .
These increases to cash provided by financing activities was offset by the following:
• Net increase of payment of deferred offering costs totaling approximately
million, mainly related to offering costs for Murphy Canyon Acquisition.
Net increase in cash dividend payments to Series A Common stockholder and
• Series D Preferred stockholder of approximately
Series D Preferred dividends during the three months ended
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Off-Balance Sheet Arrangements
OnJuly 12, 2021 , the Company entered into a securities purchase agreement with a singleU.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 duringAugust 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 inAugust 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 atMarch 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 the potential Placement Agent Warrants outstanding at
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 theSEC and was declared effectiveJanuary 21, 2022 . The Series A Warrants commenced trading on the Nasdaq Capital Market under the symbol "SQFTW" onJanuary 24, 2022 and were distributed on that date to personswho held shares of common stock and existing outstanding warrants as of theJanuary 14, 2022 record date, orwho acquired shares of common stock in the market following the record date, andwho continued to hold such shares at the close of trading onJanuary 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 the potential Series A Warrants outstanding at
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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