What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-30 compared with 2021-03-30 · 270 added, 138 removed, 194 unchanged (68% of the section changed)

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Market Information

Our Class A common stock trades on the Nasdaq Capital Market under the symbol SQFT beginning on October 7, 2020.

Our Series A Common Stock trades on the Nasdaq Capital Market under the symbol "SQFT" beginning on October 7, 2020.  Our Series D Preferred Stock is listed on The Nasdaq Capital Market under the symbol “SQFTP”

beginning on June 11, 2021. 

On January 24, 2022, our Series A Warrants began trading on the Nasdaq Capital Market under the symbol "SQFTW".

Performance Graph 

Not required.

Number of Holders of Each Class of Stock

As of March 30, 2021, there were approximately 4,600 holders of our Series A common stock.

Number of Common Stockholders

As of March 25, 2022, there were approximately 5,000 holders of our Series A Common Stock .

Dividend Payments

We seek to pay cash dividends to our common stockholders.

The following is a summary of dividends declared per share for the years ended December 31, 2020 and 2019:

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 years ended December 31, 2021 and 2020. 

The Company intends to continue to pay dividends to our common stockholders on a quarterly basis, and on a monthly basis for holders of Series D Preferred Stock going forward, but there can be no guarantee the Board of Directors will approve any future dividends.

Series A Common Stock

Cash Dividend

Series D Preferred Stock

Distributions Declared

Warrant Dividend

We set a record date of January 14, 2022 with respect to the distribution of 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.

Dividend Policy

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Our goal is to make cash dividend distributions out of our operating cash flow and proceeds from the sale of properties.

During 2020, we paid dividends of approximately $1.0 million related to 2020.  During 2019, dividends were declared in December 2019 and paid in January 2020 of approximately $1.1 million.

During 2021, we paid dividends to holders of our Series A Common Stock of approximately $4.5 million related to 2021.  During 2020, we paid dividends to our holders of Series A Common Stock of approximately $1.0 million related to 2020.

To the extent that we make dividends in excess of our earnings and profits, as computed for federal income tax purposes, these dividends will represent a return of capital, rather than a dividend, for federal income tax purposes.

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We provide each of our stockholders a statement detailing dividends paid during the preceding year and their characterization as ordinary income, capital gain or return of capital annually.

During the year ended December 31, 2020, all dividends were non-taxable as they were considered return of capital to the stockholders.

During the year ended December 31, 2019, all dividends were taxable as they were considered capital gain to the stockholders.

During the year ended December 31, 2021, all dividends to holders of our Series A Common Stock were non-taxable as they were considered return of capital to the stockholders.

During the year ended December 31, 2020, all dividends to holders of Series A Common Stock were taxable as they were considered capital gain to the stockholders.

Equity Compensation Plan Information

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The 1999 Plan provided that the maximum number of shares to be issued under the 1999 Plan would be an amount equal to 10% of the Company’s issued and outstanding common stock at such time;

the aggregate number of common stock that may be issued under the 2017 Plan is 1,100,000 shares. At December 31, 2020, approximately 651,000 restricted shares of common stock had been issued under the 1999 Plan and approximately 312,000 shares of Restricted Stock as defined in the 2017 Plan had been issued under such Plan. At December 31, 2020, the amount of shares of common stock available for future grants under the 2017 Plan was approximately 788,000 shares.

the aggregate number of common stock that may be issued under the 2017 Plan is 1,100,000 shares. At December 31, 2021, approximately 651,000 restricted shares of common stock had been issued under the 1999 Plan and approximately 514,000 shares of Restricted Stock as defined in the 2017 Plan had been issued under such Plan. At December 31, 2021, the amount of shares of common stock available for future grants under the 2017 Plan was approximately 586,000 shares.

Issuer Purchases of Equity Securities

Not applicable.

On September 17, 2021, the Board of Directors authorized a stock repurchase program of up to $10 million of outstanding shares of our Series A Common Stock. 

Purchases under the repurchase program may be made in the open market, through block trades, and other negotiated transactions.

We expect to execute the share repurchase program primarily in open market transactions, subject to market conditions.

There is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time.

The following table contains information for shares of common stock repurchased during the three months ended December 31, 2021.

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

November 2021

December 2021

SELECTED FINANCIAL DATA

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As of December 31, 2021, including properties held for sale, the Company owned or had an equity interest in:

Ten office buildings and one industrial buildings (“Office/Industrial Properties”) which total approximately 982,796 rentable square feet,

Four retail shopping centers (“Retail Properties”) which total approximately 131,722 rentable square feet and,

 office buildings and  industrial buildings (“Office/Industrial Properties”) which total approximately 757,578  rentable square feet,

 retail shopping centers (“Retail Properties”) which total approximately 121,052 rentable square feet, and

92 model homes owned by five affiliated limited partnerships and one corporation (“Model Home Properties”).

Presidio Property Trust’s office, industrial and retail properties are located primarily in North Dakota and Colorado, with three properties located in Southern California.

Our Model Home Properties are located in 6 states.

Presidio Property Trust’s office, industrial and retail properties are located California, Colorado, Maryland, North Dakota and Texas.

Our Model Home Properties are located in four states, primarily in Texas.

We acquire properties that are stabilized or that we anticipate will be stabilized within two or three years of acquisition.

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SIGNIFICANT TRANSACTIONS IN 2021 and 2020

Acquisitions during the year ended December 31, 2021

On August 17, 2021, the Company, through its 61.3% owned subsidiaries NetREIT Palm Self Storage, LP and NetREIT Highland LLC, acquired a single story newly constructed 10,500 square foot building in Houston, Texas for a purchase price of approximately $4.9 million, in connection with a like-kind exchange transaction pursued under Section 1031 of the Code. 

The building is 100% occupied under a 15-year triple net lease.

On December 22, 2021, the Company purchased a 31,752 square foot building in Baltimore, Maryland for a purchase price of approximately $8.9 million. 

The building is 100% occupied under a five year triple net lease to Johns Hopkins’

University’s Bloomberg School of Public Health.

We acquired 18 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2021.

The purchase price for the properties was approximately  $10.2 million.

The purchase price consisted of cash payments of $3.1 million and mortgage notes of $7.1 million.

The purchase price for the properties was $8.4 million.

The purchase price consisted of cash payments of $2.7 million and mortgage notes of $5.7 million.

Acquisitions during the year ended December 31, 2020

We acquired 28 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2020.

The purchase price for the properties was approximately $13.0 million.

The purchase price for the properties was $10.2 million.

The purchase price consisted of cash payments of $3.1 million and mortgage notes of $7.1 million.

Dispositions during the year ended December 31, 2021

We review our portfolio of investment properties for value appreciation potential on an ongoing basis, and dispose of any properties that no longer satisfy our requirements in this regard, taking into account tax and other considerations.

The proceeds from any such property sale, after repayment of any associated mortgage, are available for investing in properties that we believe will have a greater likelihood of future price appreciation. 

The proceeds from any such property sale, after repayment of any associated mortgage or repayment of secured or unsecured indebtedness, are available for investing in properties that we believe will have a greater likelihood of future price appreciation. 

During year ended December 31, 2021 we disposed of the following properties:

Centennial Tech Center, which was sold on February 5, 2020 for approximately $15.0 million and the Company recognized a loss of approximately $0.9 million.

Waterman Plaza, which was sold on January 28, 2021, for approximately $3.5 million and the Company recognized a loss of approximately $0.2 million.

Garden Gateway, which was sold on February 19, 2021, for approximately $11.2 million and the Company recognized a loss of approximately $1.4 million.

Highland Court, which was sold on May 20, 2021, for approximately $10.2 million and the Company recognized a loss of approximately $1.6 million.

Executive Office Park, which was sold on May 21, 2021, for approximately $8.1 million and the Company recognized a gain of approximately $2.5 million.

During the year ended December 31, 2021, we disposed of 44 model homes for approximately $20.7 million 

and recognized a gain of approximately $3.2 million.

Dispositions during the year ended December 31, 2020

During year ended December 31, 2020 we disposed of the following properties:

Centennial Tech Center, which was sold on February 5, 2020 for approximately $15.0 million and the Company recognized a loss of approximately $913,000.

Union Terrace, which was sold on March 13, 2020  

for approximately $11.3 million and the Company recognized a gain of approximately $0.7 million.

for approximately $11.3 million and the Company recognized a gain of approximately $688,000.

One of four Executive Office Park buildings, which was sold on December 2, 2020 for approximately $2.3 million and the Company recognized a loss of approximately $75,000.

During the year ended December 31, 2020, we disposed of 46 model homes for approximately $18.1 million and recognized a gain of approximately $1.6 million.

During year ended December 31, 2019 we disposed of the following properties:

Morena Office Center, which was sold on January 15, 2019 for approximately $5.6 million and the Company recognized a gain of approximately $0.7 million.

Nightingale land, which was sold on May 8, 2019 for approximately $875,000 and the Company recognized a loss of approximately $93,000.

On July 1, 2019, NetREIT Genesis, LLC sold a 43% tenants-in-common interest in Genesis Plaza (“TIC Interest”) for $5.6 million to a newly formed entity, NetREIT Genesis II, LLC, in which NetREIT Casa Grande LP is the sole member.

NetREIT Casa Grande LP owned and sold Morena Office Center on January 15, 2019.

The sale of the TIC Interest was structured as a 1031 exchange and included $2.9 million in cash and assumption of debt.

The Company remains a guarantor of the debt and NetREIT Genesis, LLC and NetREIT Genesis II, LLC are jointly and severally liable for the debt securing Genesis Plaza, the financial terms and conditions of which remain materially unchanged.

The Presidio office building, which was sold on July 31, 2019 for approximately $12.3 million and the Company recognized a gain of approximately $4.5 million.

During the year ended December 31, 2020, we disposed of 46 model homes for approximately $18.1 million and recognized a gain of approximately $1.6 million.

ECONOMIC ENVIRONMENT

Sponsorship of Special Purpose Acquisition Company

On January 7, 2022, we announced our sponsorship, through our wholly-owned subsidiary, Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), of a special purpose acquisition company (“SPAC”) initial public offering.

The SPAC raised $132,250,000 in capital investment to acquire businesses in the real estate industry, including construction, homebuilding, real estate owners and operators, arrangers of financing, insurance, and other services for real estate, and adjacent businesses and technologies targeting the real estate space, which we may refer to as “Proptech”

We, through our wholly-owned subsidiary, owned approximately 19% of the issued and outstanding stock in the entity upon the initial public offering being declared effective and consummated (excluding the private placement units described below), and that following the completion of its initial business combination that the SPAC will operate as a separately managed, publicly traded entity.

The SPAC offered $132,250,000 units, with each unit consisting of one share of common stock and three-quarters of one redeemable warrant.

The Sponsor purchased an aggregate of 828,750 units (the “placement units”) of the SPAC at a price of $10.00 per unit, for an aggregate purchase price of $8,287,500.

The placement units were sold in a private placement that closed simultaneously with the closing of the SPAC initial public offering. The Sponsor has agreed to transfer an aggregate of 45,000 placement units (15,000 each) to each of Murphy Canyon’s independent directors.

The SPAC's ability to complete a business combination may be extended in additional increments of three months up to a total of six (6) additional months from the closing date of the offering, subject to the payment into the Trust Account by the Sponsor (or its designees or affiliates) of the sum of $1,322,500, representing the sum of $0.10 per share of Common Stock sold to Public Stockholders, and which extension payments, if any, shall be added to the Trust Account. 

The Company has committed to provide additional funds if need to make such a deposit for the extension.

ECONOMIC ENVI RONMENT

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.

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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 government to enforce further restrictions.

While certain areas have re-opened, others have seen an increase in the number of cases reported, prompting local governments to consider enforcing 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.

The CARES Act included several significant provisions related to taxes, refundable payroll tax credits and deferment of social security payments.

On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law to provide further relief for the economy and to provide aid to corporations.

We continue to evaluate the relief options for us and our tenants available under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, as well as other emergency relief initiatives and stimulus packages instituted by the federal government.

A number of the relief options contain restrictions on future business activities, including ability to repurchase shares and pay dividends, that require careful evaluation and consideration, or are limited to private companies.

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.

A number 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 the fiscal 2020. 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 fourth quarter of 2020.

The effects of the COVID-19 pandemic did not significantly impact our operating results during the fiscal 

We continue to monitor and communicate with our tenants to assess their needs and ability to pay rent.

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, 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 expect that we may have additional rent deferrals, abatements and credit losses from our commercial tenants into 2021 which may have a material impact on our real estate rental revenue and cash collections.

We also 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.

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 not expect additional rent deferrals, abatements, and credit losses from our commercial tenants during the remainder of 2021 which may 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.

For more information, see Part II - Item 1A.

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”

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economic growth, but economic conditions could have a material effect on our business, financial condition and results of operations.

CREDIT MARKET ENVIRONMENT

According to Nareit, the National Association of Real Estate Investment Trusts, REITs have largely been resilient during the pandemic as overall leverage ratios were at or near the lowest on record.

REITs also lengthened the maturities of their debts to reduce risks of having to refinance during adverse market conditions.

REITs maintain high levels of liquidity, both on balance sheet through holdings of cash and securities and also through committed lines of credit.

With REIT operating performance stabilizing during the third quarter of 2020, and interest rates remaining low, REITs with concentrations in non-social distancing sectors may be poised for faster recovery in 2021.

According to Nareit's, the National Association of Real Estate Investment Trusts, 2022 Outlook for the Economy, published on it website in December 2021, Commercial Real Estate and REITs, the coming year is likely to see significant further improvement in overall economic conditions, with rising GDP, job growth, and higher incomes, in a supportive financial market environment where inflation pressures gradually subside and long-term interest rates remain well below their historical norms.

The emergence of the new Omicron variant of COVID-19 in late November 2021 serves as a reminder that the threat of new waves of infection looms over all aspects of the global economy.

Increasing vaccination rates and natural immunity due to prior infection may help contain these risks. 

Nareit does not expect commercial real estate markets or the rest of the economy to go back completely to the way they were before the pandemic.  Overall, the year ahead is likely to build on the recovery that is already underway in the macroeconomy and in commercial real estate markets.

REITs are likely to perform well in this growth environment.

Three obstacles are challenging the outlook over the near-term:

ongoing high levels of COVID-19 infections, production and supply chain bottlenecks, and an elevated inflation rate.

First, the pandemic continues to hold back many types of economic activity that involve face-to-face interactions, including employees’

return to the office, business travel, and many forms of entertainment.

Second, the supply chain issues are well known, and have restricted auto production and availability of many types of goods.

Finally, the consumer price index has risen 6.2% over the past 12 months, well above the Federal Reserve’s target, raising the possibility of higher interest rates to slow the economy to prevent it from overheating.

Labor shortages, especially in a few sectors like hotels and restaurants, have limited some businesses’

ability to reopen fully.

Most of the inflation pressures have resulted, however, from shortages of key components due to production and supply chain disruptions, and there is little evidence to date that inflation is being driven by higher labor costs.

There has been, in fact, significant progress on the return-to-office.

In May 2020, 46 million employees reported that they were working from home due to the pandemic.

There has been a steady flow over the past 18 months of millions of workers returning to the office, although this trend was briefly interrupted by the surge in cases of COVID-19 in November-December 2020 and again by the Delta variant last summer (see Nareit's chart 1.4:

Return to Office).

Nearly two-thirds of employees who had reported they were working from home in May 2020 had returned to the office by November 2021, although the pace of return has varied month-to-month according to the rate of vaccinations and infections.

These trends show that workers are coming back, but the pace at which they return to the office still depends on the pandemic.

Recent new leases signed by major technology companies indicates that offices are an essential part of their business model.

As COVID-19 cases decline, Nareit expects workers will continue to come back.

CREDIT MARKET ENVIRON MENT

As noted in Nareit's "REITs & Inflation Outlook 2022:

What to Know" article published on its website in December 2021, inflationary pressure to the macroeconomy from the effects of supply chain interruptions will likely lead to moderate inflation levels over the next year, rising above the Federal Reserve's target of 2.5% but likely well below historically high levels seen in the 1970s and early 1980s.  Same store net operating income (SSNOI) from Nareit’s T-Tracker gives a conservative estimate of REIT growth during different periods of inflation.

SSNOI doesn’t include growth from acquisitions and the data exclude some of the highest growth property sectors of the last decade—lodging/resorts, timber, infrastructure, data centers, and specialty. 

Annual SSNOI growth outpaced annual inflation in 63% of quarters from 1996Q1 to 2021Q3.

There are no periods of high inflation in this time period, and the average inflation is under the Federal Reserve target at 2.2%.

REIT operating income is consistently higher during periods of higher inflation, SSNOI growth averaged 2.5% during low inflation periods compared to 3.0% in periods of moderate inflation.

While past performance is not always predictive of the future, Nareit see that in the current environment REIT operating income is more than keeping pace with price level increases.

In the two most recent quarters when consumer price index jumped over 5%, SSNOI outpaced the uptick in annualized inflation by 23 basis points in 2021Q2 and 187 basis points in Q3.

Our ability to execute our business strategies, and in particular to make new investments, is highly dependent upon our ability to procure external financing.

Our principal sources of external financing include the issuance of our equity securities and mortgages secured by properties. The market for mortgages has remained strong, and interest rates remain relatively low compared to historical rates, decreasing approximately 1.5% during 2020 for refinanced mortgages.

We continue to obtain mortgages from the commercial mortgage-backed securities (“CMBS”) market, life insurance companies and regional banks.

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Even though we have been successful in procuring equity financing and secured mortgages financing, we cannot be assured that we will be successful at doing so in the future.

Rising inflation and elevated U.S.

budget deficits and overall debt levels, including as a result of federal pandemic relief and stimulus legislation and/or economic or market and supply chain conditions, can put upward pressure on interest rates and could be among the factors that could lead to higher interest rates in the future.

Higher interest rates could adversely affect our overall business, income, and our ability to pay dividends, including by reducing the fair value of many of our assets and adversely affecting our ability to obtain financing on favorable terms or at all, and negatively impacting the value of properties and the ability of prospective buyers to obtain financing for properties we intend to sell.

This may affect our earnings results, reduce our ability to sell our assets, or reduce our liquidity.

Furthermore, our business and financial results may be harmed by our inability to accurately anticipate developments associated with changes in, or the outlook for, interest rates.

MANAGEMENT EVALUATION OF RESULTS OF OPERATIONS

Our management team’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 dividends to our stockholders.

As a result, our management team’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.

Our management team’s evaluation of our potential for generating cash flow includes on-going assessments of our existing portfolio of 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, our management team evaluates our portfolio and individual properties’

results of operations with a primary focus on increasing and enhancing the value, quality and quantity of properties in our real estate holdings.

Our management team focuses its efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals and rental rates.

Properties that have reached goals in occupancy and rental rates are evaluated for potential added value appreciation and, if lacking such potential, are sold with the equity reinvested in properties that have better potential without foregoing cash flow.

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.

Our results of operations for the years ended December 31, 2020 and 2019 are not indicative of those expected in future periods, as we expect that rental income, interest expense, rental operating expense, general and administrative expense, and depreciation and amortization will significantly change in future periods as a result of the assets sold over the last two years, potential sale of real estate assets in 2021 in order to generate sufficient cash proceeds to pay down the Company’s obligation to the Polar Note, and the growth through future acquisitions of real estate related investments.

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 cash flow 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

Our results of operations for the years ended December 31, 2021 and 2020 are not indicative of those expected in future periods. 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, 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.

CRITICAL ACCOUNTING POLICIES

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Real Estate Held for Sale and Discontinued Operations.

Real estate sold during the current period is classified as “real estate held for sale”

Real estate sold or to be sold during the current period is classified as “real estate held for sale”

for all prior periods presented in the accompanying condensed consolidated financial statements.

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Management believes that the recorded and fair values of notes payable are approximately the same as of December 31, 2021 and 2020.

When available, we utilize quoted market prices from independent third-party sources to determine fair value and classify such items in Level 1 or Level 2.

In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require us to make a significant adjustment to derive a fair value measurement.

Additionally, in an inactive market, a market price quoted from an independent third-party may rely more on models with inputs based on information available only to that independent third-party.

When we determine the market for a financial instrument owned by us to be illiquid or when market transactions for similar instruments do not appear orderly, we use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establish a fair value by assigning weights to the various valuation sources. 

As of December 31, 2021 and December 31, 2020, our marketable securities presented on the balance sheet were measured using Level 1 market prices. 

There were no financial liabilities measured at fair value as of December 31, 2021 and 2020.

Additionally, when determining the fair value of a liability in circumstances in which a quoted price in an active market for an identical liability is not available, we measure fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.  Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values.

In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

Depreciation and Amortization .

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The cost of buildings are depreciated over estimated useful lives of 39 years, the costs of improvements are amortized over the shorter of the estimated life of the asset or term of the tenant lease (which range from 1 to 10 years), the costs associated with acquired tenant intangibles over the remaining lease term and the cost of furniture, fixtures and equipment are depreciated over 4 to 5 years.

Earnings per share ( “

The EPS on Common stock has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings Per Share. 

The guidance requires the classification of the Company’s unvested restricted stock, which contain rights to receive non-forfeitable dividends, as participating securities requiring the two-class method of computing net income per share of common stock. 

In accordance with the two-class method, earnings per share have been computed by dividing the net income less net income attributable to unvested restricted shares by the weighted average number of shares of common stock outstanding less unvested restricted shares.

Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock and potentially dilutive securities outstanding in accordance with the treasury stock method.

RESULTS FROM OPERATIONS FOR THE YEARS ENDED  

December 31, 2021  AND 2020

Our results from operations for 2020 and 2019 are not indicative of those expected in future periods as we expect that rental income, interest expense, rental operating expense, general and administrative expenses, and depreciation and amortization will significantly change in future periods as a result of the assets sold over the last two years, potential sale of real estate assets in 2021 in order to generate sufficient cash proceeds to pay down the Company’s obligation to the Polar Note, and the growth through future acquisitions of real estate related investments.

Total revenue was $24.4 million for the year ended December 31, 2020, compared to $28.6 million for the same period in 2019, a decrease of $4.3 million or 15%.

The decrease in rental income reported in 2020 compared to 2019 is directly related to the sale of two properties during the first quarter of 2020 and two properties in 2019.

The decrease in rental income is also attributable to the decrease in occupancy to 84.1% as of December 31, 2020 compared to 84.5% for the same period in 2019.

Our results from operations for 2021 and 2020 are not indicative of those expected in future periods as we expect that rental income, interest expense, rental operating expense, general and administrative expenses, and depreciation and amortization will significantly change in future periods as a result of the assets sold over the last two years.

Total revenue was approximately  

$19.23 million for the year ended December 31, 2021 , compared to approximately 

$24.35 million for the same period in 2020 , a decrease of approximately 

$5.12 million or 21% .

The decrease in rental income reported in 2021  compared to 2020  is directly related to the sale of four commercial properties during 2021 and three commercial properties during 2020, and the net decrease in model home property (26) during the year ended December 31, 2021 . 

Rental Operating Costs . 

Rental operating costs were $8.8 million for the year ended December 31, 2020 compared to $10.4 million for the same period in 2019, a decrease of $1.6 million or 15%.

Rental operating costs as a percentage of total revenue was 36.2% and 36.3% for the years ended December 31, 2020 and 2019, respectively.

The decrease in rental operating costs as a percentage of total revenue for the years ended December 31, 2020 compared to 2019 is due to the mix of properties held to include a higher percentage of model homes period over period, which have significantly lower operating costs.

Rental operating costs were approximately 

$6.18 million for the year ended December 31, 2021  compared to approximately 

$8.82 million for the same period in 2020 , a decrease of approximately 

$2.64 million or 30% .

Rental operating costs as a percentage of total revenue was 

32.2% and 

36.2% for the years ended December 31, 2021  and 2020 , respectively.

The decrease in rental operating costs as a percentage of total revenue for the years ended December 31, 2021  compared to 2020  is due to the mix of properties held to include a higher percentage of triple net properties and model homes period over period, which have significantly lower operating costs.

General and Administrative .

General and administrative (“G&A”) expenses were $5.8 million for the year ended December 31, 2020, compared to $5.3 million for the same period in 2019, representing an increase of approximately $0.5 million or 9%.

As a percentage of total revenue, our general and administrative costs was 23.6% and 18.4% for the years ended December 31, 2020 and 2019, respectively.

The increase in G&A expense for the years ended December 31, 2020 compared to 2019 is due to the timing of vesting of non-cash stock compensation expense primarily for stock granted to new employees and officers, as well as due to the decrease in revenue related to early 2019 and early 2020 property sales.

General and administrative (“G&A”) expenses were approximately 

$6.23 million for the year ended December 31, 2021 , compared to approximately 

$5.75 million for the same period in 2020 , representing an increase of approximately 

$0.47 million or 8% .

As a percentage of total revenue, our general and administrative costs was approximately 

32.4% and 

23.6% for the years ended December 31, 2021  and 2020 , respectively.

The increase in G&A expense for the years ended December 31, 2021  compared to 2020  is mainly due to the increase in stock compensation which increased approximately $0.5 million.  

In connection with the Company becoming publicly traded in October 2020, the Company plans to continue rewarding its employee through stock-based compensation at a greater rate than historically. 

The increase was slightly offset by the decreased payroll related costs, temporally reduced by the Employee Retention Credit ("ERC") received during the second quarter of 2021.

Depreciation and Amortization .

Depreciation and amortization expenses were $6.3 million for the year ended December 31, 2020, compared to $7.4 million for the same period in 2019, representing a decrease of $1.1 million or 15%.

Depreciation and amortization expenses were approximately 

$5.40 million for the year ended December 31, 2021 , compared to approximately 

$6.27 million for the same period in 2020 , representing a decrease of approximately 

$0.88 million or 14% .

The decrease in depreciation costs is associated with the properties sold in 2021  and 2020 .

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We review the carrying value of each of our real estate properties annually to determine if circumstances indicate an impairment in the carrying value of these investments exists.

During 2020, we recognized a non-cash impairment charge of $1.3 million on the Waterman Plaza property and $0.4 million on Highland Court.

Interest Expense-Series B Preferred Stock.

The Series B preferred stock issued in August 2014 included a mandatory redemption and therefore, is treated as a liability for financial reporting purposes.

The dividends paid and the amortization of the deferred offering costs are considered interest expense for reporting purposes under generally accepted accounting principles (“GAAP”).

Dividends paid totaled $1.9 million for the year ended December 31, 2019.

The decrease is primarily due to the redemption of all the outstanding Series B preferred stock on September 17, 2019.

The amortization of the deferred offering costs was approximately $0.1 million for the year ended December 31, 2019, and was included in interest expense-Series B preferred stock in the accompanying financial statements.

The deferred offering costs were fully amortized and all of the outstanding Series B preferred stock was redeemed and no longer outstanding as of and for the year ended December 31, 2019. 

There was no such interest expense in 2020.

Interest Expense-mortgage notes.

Interest expense related to the mortgage notes, including amortization of deferred finance charges, decreased by approximately $1.2 million, or 16%, to approximately $6.1 million for the year ended December 31, 2020 compared to $7.3 million for the same period in 2019.

The decrease in interest expense relates to the decreased number of commercial properties owned in 2020 compared to 2019 and the related decrease in debt. The weighted average interest rate on our outstanding mortgage debt decreased to 3.9% at December 31, 2020 from 4.6% at December 31, 2019.

Interest Expense-note payable.

On September 17, 2019 the Company executed a Promissory Note pursuant to which Polar Multi-Strategy Master Fund ("Polar"), executed a loan in the principal amount of $14.0 million to the Company ("Polar Note").

The Polar Note bears interest at a fixed rate of 8% per annum and requires monthly interest-only payments.

The final payment due at maturity, March 31, 2021 upon extension of the Polar Note in September 2020, includes payment of the outstanding principal and accrued and unpaid interest.

The Company used the proceeds of the Polar Note to redeem all of the outstanding shares of the 14% Series B Preferred Stock.

For the year ended December 31, 2020, interest expense related to the Polar Note was approximately $2.7 million, which includes accretion of original issue discount ("OID") of approximately $1.0 million and amortization of deferred financing cost of approximately $0.9 million.

As of December 31, 2020, the Polar Note payable was $7.5 million, net of unamortized deferred financing cost of $0.2 million.

2020 , we recognized a non-cash impairment charge of approximately 

$1.73 million  on the Waterman Plaza property and Highland Court.

This impairment charges reflect management’s revised estimate of the fair market value based on sales comparable of like property in the same geographical area as well as an evaluation of future cash flows or an executed purchase sale agreement. The Company recognized a non-cash impairment of $0.3 million, related to the potential sale or our Highland Court property, and $0.3 million non-cash impairment related to 300 N.P. during the year ended December 31, 2021 . 

Interest Expense-mortgage notes. 

Interest expense, including amortization of deferred finance charges was approximately $4.54 million for the year ended December 31, 2021 compared to approximately 

$6.10 million  for the same period in 2020, a decrease of approximately 

$1.56 million , or 26% .

The decrease in mortgage interest expense relates to the decreased number of commercial properties owned in 2021 compared to 2020 and the related mortgage debt.

The weighted average interest rate on our outstanding debt was 4.25% and 4.18% as of December 31, 2021 and 2020 , respectively.

Interest Expense-note payable.  

On September 17, 2019, the Company executed a Promissory Note pursuant to which Polar, extended a loan in the principal amount of approximately $14.0 million to the Company.

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 approximately $0.3 and $2.7 million for the year ended December 31, 2021 and 2020, resp ectively. 

The Polar Note was paid in full during March 2021.

Gain on Sale of Real Estate Assets.

For the year ended December 31, 2020, the decrease in gain on sale relates to the mix and type of properties sold. See Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations—Significant Transactions in 2020 and 2019 above for further detail.

For the year ended December 31, 2021 , the change in gain on sale relates to the mix and type of properties sold. See Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations—Significant Transactions in 2021 and 2020 above for further detail.

Gain on Extinguishment of Government Debt.

On April 30, 2020, the Company received a Paycheck Protection Program ("PPP") loan of $0.5 million from the Small Business Administration ("SBA") which provided additional economic relief during the COVID-19 pandemic.

On April 30, 2020, the Company received a Paycheck Protection Program ("PPP") loan of approximately $0.5 million from the Small Business Administration ("SBA") which provided additional economic relief during the COVID-19 pandemic.

The PPP loan, less $10,000 related to the Economic Injury Disaster Loan ("EIDL") received on April 22, 2020, was forgiven by the SBA as of December 31, 2020 and was fully forgiven in January 2021 upon repeal of the EIDL holdback requirements.

No similar government assistance was received in fiscal 2019.

The gain on extinguishment of government debt totaled $10,000 and $451,785 for the years end 

December 31, 2021 and 2020 , respectively.

Deferred Offering Costs.

 For the year ended December 31, 2020, the Company recorded $0.5 million in legal, accounting and filing related expenses upon completion of our initial public offering.

No such similar costs were recorded during the year ended December 31, 2019.

Income Tax Expense.

For the year ended December 31, 2020, the income tax expense decreased by $0.2 million to $0.4 million for the year ended December 31, 2020 compared to $0.6 million for the year ended December 31, 2019.

The decreased income tax expense in 2020 is primarily due federal and state taxes for capital gains from the sale of model homes held by the taxable REIT subsidiary, which has decreased from prior year.

 For the year ended December 31, 2020 , the Company recorded approximately $0.5 million in legal, accounting and filing related expenses upon completion of our initial public offering.

Income Tax Expense / Credit.

For the year ended December 31, 2021 , the Company recorded an income tax credit of approximately $48,000 related to estimated refunds from federal and state taxes for capital gains from the sale of model homes held by the taxable REIT subsidiary compared to a income tax expense of approximately $371,000, for the year ended December 31, 2020 .

Income allocated to non-controlling interests. 

Income allocated to non-controlling interests for the year ended December 31, 2020 and 2019 totaled $1.4 million.  

Income allocated to non-controlling interests for the year ended December 31, 2021  and 2020  totaled approximately 

$2.16 million , and 

$1.41 million  

Geographic Diversification Tables

The following table shows a list of commercial properties owned by the Company grouped by state and geographic region as of December 31, 2021:

of Properties

Aggregate Square Feet

Approximate % of Square Feet

Current Base Annual Rent

Approximate % of Aggregate Annual Rent

The following table shows a list of our Model Home properties by geographic region as of December 31, 2021:

Geographic Region

of Properties

Aggregate Square Feet

Approximate % of Square Feet

Current Base Annual Rent

Approximate % of Aggregate Annual Rent

LIQUIDITY AND CAPITAL RESOURCES

Our future sources of liquidity may include existing cash and cash equivalents, cash flows from operations, new mortgages on our encumbered properties, refinancing of existing mortgages, additional borrowings of secured or unsecured indebtedness, real estate sales and the sale of additional equity/debt securities.

Our cash and restricted cash at December 31, 2020 was $11.5 million, which included our available liquidity of cash and cash equivalents of $7.4 million.

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.

Our cash and restricted cash at December 31, 2021  was $14.7 million , which included our available liquidity of cash and cash equivalents.

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.

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.

We currently do not have a revolving line of credit but have been working to obtain such a line of credit.

Our short-term liquidity needs include paying down the Polar Note, 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.

During March 2021, prior to maturity, the Polar note was paid in full, from available cash on hand.

See Part 15.

Exhibits, Financial Statement Schedules—Note 14.

Subsequent Events for additional information. For the year ended December 31, 2020, the cash dividends paid to our common stockholders totaled $1.0 million and the net cash provided by operating activities totaled approximately $3.7 million.

We believe that the cash flow from our existing portfolio, distributions from joint ventures in Model Home partnerships and property sales during 2020 will be sufficient to fund our near-term operating costs, capital expenditures and future dividends that may be paid to stockholders.

If our cash flow from operating activities is not sufficient to fund our short-term liquidity needs, we will fund a portion of these needs from additional borrowings of secured or unsecured indebtedness, capital raises, from real estate sales, or we will reduce the rate of dividends to the stockholders.

As stated above, our short-term liquidity needs include satisfying the debt service requirements of our existing mortgages.

If our cash flow from operating activities is not sufficient to fund our short-term liquidity needs, we will fund a portion of these needs from additional borrowings of secured or unsecured indebtedness, from real estate sales, from sales of equity or debt securities, or we will reduce the rate of dividends to the stockholders.

For the year ending December 31, 2021, we have $10.2 million of mortgage notes payable maturing related to the Model Home Properties.

Management expects that certain Model Home Properties will be sold and the underlying mortgage notes will be paid off with sales proceeds while other mortgage notes will be refinanced.

For the year ending December 31, 2021, we have $16.4 million of mortgage notes payable maturing related to the commercial properties.

We plan to sell properties or refinance a significant portion of the mortgage notes payable, in the event the commercial property securing the respective mortgage note is not sold on or before maturity.

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 $12.2 million, of which 

$8.6 million 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.

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Cash, Cash Equivalents and Restricted Cash

At December 31, 2020, we had approximately $11.5 million in cash, cash equivalents and restricted cash. Our cash equivalents and restricted cash consist of invested cash and cash in our operating accounts and are held in bank accounts at third party institutions. During 2020 three of our lenders required cash reserves due to vacancy rates, as per our lending agreements, two of which will cease upon a $350,000 reserve while the other will cease when the debt coverage ratio meets or exceeds 1.25 for two quarters.

Cash held in reserves under these arrangements was $0.6 million as of December 31, 2020. During 2019 we did not experience any loss or lack of access to our cash or cash equivalents.

Approximately $3.5 million of our cash balance is restricted and intended for capital expenditures on existing properties (net of deposits held in reserve accounts by our lenders).

We intend to use the remainder of our existing cash and cash equivalents for pay off of principal debt, acquisitions, general corporate purposes and distributions to our stockholders.

As of December 31, 2020, the Company had two variable-rate mortgage notes payable with a principal amount of $3.2 million and $5.8 million, and fixed-rate mortgage notes payable in the aggregate principal amount of $83.7 million, collateralized by a total of 15 commercial properties with loan terms at issuance ranging from 1 to 17 years. 

The weighted-average interest rate on the mortgage notes payable as of December 31, 2020 was approximately 3.9%, and our debt to estimated market value ratio on these properties was approximately 60.6%.

As of December 31, 2020, NetREIT Dubose, and related entities, had 113 fixed-rate mortgage notes payable in the aggregate principal amount of $28.1 million, collateralized by 113 Model Home Properties.

These loans generally have a term at issuance of three to five years. The average loan balance per home outstanding and the weighted-average interest rate on these mortgage loans are approximately $249,000 and 3.7%, respectively as of December 31, 2020. Our debt to estimated market value ratio on these properties is approximately 73.5%.

The Company has guaranteed between 25%-100% of these mortgage notes payable. 

At December 31, 2021 , and December 31, 2020, we had approximately 

$14.7 million and $11.5 million in cash equivalents, respectively, including 

$4.7 million  and 

$4.2 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 2021 and 2020, we did not experience any loss or lack of access to our cash or cash equivalents.

Approximately $1.7 million of our cash and restricted cash balance is intended for capital expenditures on existing properties (including deposits held in reserve accounts by our lenders) over the next 12 months of 2022.

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 and sponsorship of Murphy Canyon Acquisition Corp.

As of December 31, 2021 , all our commercial properties had fixed-rate mortgage notes payable in the aggregate principal amount of $67.3 million, collateralized by a total of 10 commercial properties with loan terms at issuance ranging from 5 to 22 years. The weighted-average interest rate on these mortgage notes payable as of December 31, 2021  was approximately 4.5%, and our debt to estimated market value for our commercial properties was approximately 51.9%. The debt to estimated market value includes the $7.2 million related party loans on our Mandolin and McElderry properties in Houston, TX and Baltimore, MD, respectively, which are eliminated in consolidation. 

As of December 31, 2021 , the Company had 84 fixed-rate mortgage notes payable related to model homes in the aggregate principal amount of $22.2 million, excluding loans eliminated through consolidation, collateralized by a total of 84 Model Homes.

These loans generally have a term at issuance of three to five years. As of December 31, 2021 , the average loan balance per home outstanding and the weighted-average interest rate on these mortgage loans are approximately $264,000 and 3.4%, respectively. Our debt to estimated market value on these properties is approximately 56.1%, including loan eliminated through consolidation. The Company has guaranteed approximately 15% 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 years ended December 31, 2021  and December 31, 2020

Operating Activities:

Net cash provided by operating activities for the years ended December 31, 2020 and 2019 decreased by $0.1 million to approximately $3.7 million from $3.8 million.

The decrease in net cash provided by operating activities is primarily due to a decrease in working capital of $0.1 million year over year.

Net cash provided by operating activities for the years ended December 31, 2021  and 2020  decreased by $1.3 million 

to approximately $2.4 million 

from $3.7 million .  The change in net cash provided 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 provided by investing activities for the year ended December 31, 2020 increased $15.7 million to approximately $27.7 million compared to $12.0 million for the same period in 2019.

Net cash provided by investing activities for the year ended December 31, 2021  decreased $3.5 million 

to approximately $24.2 million 

compared to $27.7 million for the same period in 2020 .

During the year ended December 31, 2021 , the Company received gross proceeds from the sale of four office buildings for approximately $35.4 million, and sales of 42 Model Homes for approximately $20.7 million, which was offset by the purchase of 

two commercial properties for approximately $13.6 million and 17 Model Homes for approximately $8.1 million.

During the year ended December 31, 2020 , the Company received gross proceeds from the sale of three office buildings for approximately $46.7 million, and sales of 46 Model Homes for approximately $18.1 million, which was offset by the purchase of 28 Model Homes for approximately $10.2 million

During the year ended December 31, 2019, the Company received gross proceeds from the sale of two office buildings for approximately $17.9 million, sale of land for $875,000 and sales of 41 Model Homes for approximately $14.6 million, which was offset by the purchase of 33 Model Homes for approximately $13.0 million and capital expenditures of approximately $6.4 million primarily related to tenant improvements for the new Chuze Fitness tenant at World Plaza.

We currently project that we could spend up to $1.8 million (net of deposits held in reserve accounts by lenders) on capital improvements, tenant improvements and leasing costs for properties within our portfolio on an annual basis.

We currently project that we could spend up to $1.7 million (including deposits held in reserve accounts by lenders) on capital improvements, tenant improvements and leasing costs for properties within our portfolio on an annual basis.

Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to the properties.

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Net cash used in financing activities during the year ended December 31, 2021  

was $30.2 million compared to $15.2 million for the same period in 2019.

The increase of $15.0 million in net cash used in financing activities is primarily due to the following activities for the year ended December 31, 2020:

Increase in mortgage notes payable of $13.6 million;

Increased distributions to noncontrolling interests of $2.7 million;

Net increase in corporate debt repayments of $1.3 million;

An increase in proceeds from the sale of common stock of $2.0 million;

A decrease in dividend cash payments of $1.2 million.

was $23.4 million compared to $30.2 million for the same period in 2020 .

The decrease of $6.8 million in net cash used in financing activities is primarily due to the following activities for the year ended December 31, 2021 :

Net increase in dividends of $3.5 million paid to holders of our Series A Common Stock and $1.0 million paid to holders of our Series D Preferred Stock;

Distributions to noncontrolling interest increased approximately $5.2 million related to sale of model home properties.

Net increase in repayment of the Polar Note, the fully payment of mortgage note on the World Plaza property and full payment of the four mortgage notes related to the properties sold during 2021; offset by

• 

The issuance of our Series D Preferred Stock with net proceeds of approximately $20.5 million and net Common Stock proceeds of approximately $8.9 million.

• 

Net proceeds from the issuance of mortgage notes payable on model homes.

Off-Balance Sheet Arrangements

As of December 31, 2020, we do not have any off-balance sheet arrangements or obligations, including contingent obligations.

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 December 31, 2021, were exercised at the price of $5.00 per share, gross proceeds to us would be $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 December 31, 2021, were exercised at the price of $6.25 per share, gross proceeds to us would be $0.5 million and we would as a result issue an additional 80,000 shares of common stock.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity