Presidio Property Trust, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES   Market Information   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 Common Stockholders   As of March 25, 2022, there were approximately 5,000 holders of our Series A Common Stock .   Dividend Payments   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 Month   2021     2020       Cash Dividend     Cash Dividend   March 31   $ 0.101     $ —   June 30     0.102       —   September 30     0.103       —   December 31     0.104       0.100   Total   $ 0.410     $ 0.100       42 Table of Contents     Series D Preferred Stock                                     Month   2021     2020       Distributions Declared     Distributions Declared   January   $ —     $ —   February     —       —   March     —       —   April     —       —   May     —       —   June     0.10417       —   July     0.19531       —   August     0.19531       —   September     0.19531       —   October     0.19531       —   November     0.19531       —   December 31     0.19531       —   Total   $ 1.27603       —       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   We plan to pay at least 90% of our annual REIT taxable income to our stockholders in order to maintain our status as a REIT. We intend to continue to declare dividends, however, we cannot provide any assurance as to the amount or timing of future dividends. Our goal is to make cash dividend distributions out of our operating cash flow and proceeds from the sale of properties. 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. Dividends that are treated as a return of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. stockholder, but will reduce the stockholder’s basis in its shares (but not below zero) and therefore can result in the stockholder having a higher gain upon a subsequent sale of such shares. Return of capital dividends in excess of a stockholder’s basis generally will be treated as gain from the sale of such shares for federal income tax purposes.   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, 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.   43 Table of Contents   Equity Compensation Plan Information   We established the 1999 Flexible Incentive Plan (“1999 Plan”) for the purpose of attracting and retaining employees, which was superseded by the 2017 Incentive Award Plan (“2017 Plan”). 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, 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   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.   Month   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   October 2021     —     $ —       —     $ —   November 2021     —       —       —       —   December 2021     11,588       3.6097       11,588       9,931,604   Total     11,588     $ 3.6097       11,588     $ 9,931,604     ITEM 6. SELECTED FINANCIAL DATA   Not required.   ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion relates to our financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to materially differ from those projected. Some of the information presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, project development timing and investment amounts. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include the timing and strength of national and regional economic growth, the strength of commercial and residential markets, competitive market conditions, and fluctuations in availability and cost of construction materials and labor resulting from the effects of worldwide demand, future interest rate levels and capital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information. For a discussion of important risks related to our business, and an investment in our securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. See Item 1A for a discussion of material risks.   44 Table of Contents   OVERVIEW   The Company operates as an internally managed diversified real estate investment trust, or REIT.  The Company invests in a multi-tenant portfolio of commercial real estate assets comprised of office, industrial, and retail properties and model homes leased back to the homebuilder located primarily in the western United States. As of December 31, 2021, including properties held for sale, the Company owned or had an equity interest in:     •  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 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. We consider a property to be stabilized once it has achieved an 80% occupancy rate for a full calendar year, or has been operating for three years. Our geographical clustering of assets enables us to reduce our operating costs through economies of scale by servicing a number of properties with less staff, but it also makes us more susceptible to changing market conditions in these discrete geographic areas.   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 (NNN Leases) or pay increases in operating expenses over specific base years. Most of our office leases are for terms of 3 to 5 years with annual rental increases. Our model homes are typically leased for 2 to 3 years to the homebuilder 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.   We seek to diversify our portfolio by commercial real estate segments to reduce the adverse effect of a single under-performing segment, geographic market and/or tenant. We further supplement this 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 business partners are substantial homebuilders with established credit histories. These tenants are subjected to financial review and analysis prior to us entering into a sales-leaseback transaction. Our ownership of the underlying property provides a further means to avoiding significant credit losses.   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 $8.4 million. The purchase price consisted of cash payments of $2.7 million and mortgage notes of $5.7 million.   45 Table of Contents   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 $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 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:     • 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 $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.     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” businesses. 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.   46 Table of Contents   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. 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 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 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  year 2021. We continue to monitor and communicate with our tenants to assess their needs and ability to pay rent. We have negotiated lease amendments with certain tenants who have demonstrated financial distress caused by the COVID-19 pandemic, which have included or may include rent deferral, temporary rent abatement, or reduced rental rates and/or lease extension periods, however no new negotiations were initiated during the first and second quarters of 2021. 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 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. 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” included elsewhere in this Annual Report on Form 10-K.   We have taken steps to best protect the health and safety of our employees globally.  Our daily execution has evolved largely into a virtual model, but we believe we have been successful in maintaining our ability to effectively communicate with and service our tenants during the pandemic period.    It is impossible to project U.S. economic growth, but economic conditions could have a material effect on our business, financial condition and results of operations.   47 Table of Contents   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.       48 Table of Contents   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. We continue to obtain mortgages from the commercial mortgage-backed securities (“CMBS”) market, life insurance companies and regional banks. Although these lenders are currently optimistic about the outlook of the credit markets, the potential impact of new regulations and market volatility remain a concern. 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   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   49 Table of Contents   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   As a company primarily involved in owning income generating real estate assets, management considers the following accounting policies critical as they reflect our more significant judgments and estimates used in the preparation of our financial statements and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.   Real Estate Assets and Lease Intangibles . Land, buildings and improvements are recorded at cost, including tenant improvements and lease acquisition costs (including leasing commissions, space planning fees, and legal fees). We capitalize any expenditure that replaces, improves, or otherwise extends the economic life of an asset, while ordinary repairs and maintenance are expensed as incurred. We allocate the purchase price of acquired properties between the acquired tangible assets and liabilities (consisting of land, building, tenant improvements, land purchase options, and long-term debt) and identified intangible assets and liabilities (including the value of above-market and below-market leases, the value of in-place leases, unamortized lease origination costs and tenant relationships), based in each case on their respective fair values.   We allocate the purchase price to tangible assets of an acquired property based on the estimated fair values of those tangible assets assuming the building was vacant. Estimates of fair value for land, building and building improvements are based on many factors including, but not limited to, comparisons to other properties sold in the same geographic area and independent third party valuations. We also consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair values of the tangible and intangible assets and liabilities acquired.   The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease. Characteristics considered by management in allocating these values include the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality, among other factors.   The value allocable to the above-market or below-market market component of an acquired in-place lease is determined based upon the present value (using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of rents that would be paid using fair market rates over the remaining term of the lease.   The value of in-place leases and unamortized lease origination costs are amortized to expense over the remaining term of the respective leases, which range from less than a year to ten years. The amount allocated to acquire in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amount allocated to unamortized lease origination costs is determined by what we would have paid to a third party to secure a new tenant reduced by the expired term of the respective lease.   Real Estate Held for Sale and Discontinued Operations. 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. Mortgage notes payable related to the real estate sold during the current period is classified as “notes payable related to real estate held for sale” for all prior periods presented in the accompanying condensed consolidated financial statements. Additionally, we record the operating results related to real estate that has been disposed of as discontinued operations for all periods presented if the operations have been eliminated and represent a strategic shift and we will not have any significant continuing involvement in the operations of the property following the sale.   50 Table of Contents   Impairment of Real Estate Assets . We review the carrying value of each property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified. If circumstances support the possibility of impairment, we prepare a projection of the undiscounted future cash flows, without interest charges, of the specific property and determine if the investment in such property is recoverable. If impairment is indicated, the carrying value of the property is written down to its estimated fair value based on our best estimate of the property’s discounted future cash flows.   Goodwill and Intangible Assets . Intangible assets, including goodwill and lease intangibles, are comprised of finite-lived and indefinite-lived assets. Lease intangibles represents the allocation of a portion of the purchase price of a property acquisition representing the estimated value of in-place leases, unamortized lease origination costs, tenant relationships and land purchase options. Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. Indefinite-lived assets are not amortized.   We test for impairment of goodwill and other definite and indefinite lived assets at least annually, and more frequently as circumstances warrant. Impairment is recognized only if the carrying amount of the intangible asset is considered to be unrecoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the estimated fair value of the asset.   Sales of Real Estate Assets . Generally, our sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. If we determine we do not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer.   Revenue Recognition . We recognize minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured and record amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:     • whether the lease stipulates how a tenant improvement allowance may be spent;     • whether the amount of a tenant improvement allowance is in excess of market rates;     • whether the tenant or landlord retains legal title to the improvements at the end of the lease term;     • whether the tenant improvements are unique to the tenant or general-purpose in nature; and         • whether the tenant improvements are expected to have any residual value at the end of the lease.   We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.   We make estimates of the collectability of our tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. We specifically analyze accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, we will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.   Sales of real estate are recognized generally upon the transfer of control, which usually occurs when the real estate is legally sold. The application of these criteria can be complex and required us to make assumptions. We believe the relevant criteria were met for all real estate sold during the periods presented.   51 Table of Contents   Income Taxes. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, for federal income tax purposes. To maintain our qualification as a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided we maintain our qualification for taxation as a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. If we fail to maintain our qualification as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. We are subject to certain state and local income taxes.   We, together with one of our entities, have elected to treat such subsidiaries as taxable REIT subsidiaries (a “TRS”) for federal income tax purposes. Certain activities that we undertake must be conducted by a TRS, such as non-customary services for our tenants, and holding assets that we cannot hold directly. A TRS is subject to federal and state income taxes.   Fair Value Measurements . Certain assets and liabilities are required to be carried at fair value, or if long-lived assets are deemed to be impaired, to be adjusted to reflect this condition. The guidance requires disclosure of fair values calculated under each level of inputs within the following hierarchy:   Level 1 – Quoted prices in active markets for identical assets or liabilities at the measurement date.   Level 2 – Inputs other than quoted process that are observable for the asset or liability, either directly or indirectly.   Level 3 – Unobservable inputs for the asset or liability.   Fair value is defined as the price at which an asset or liability is exchanged between market participants in an orderly transaction at the reporting date. Our cash equivalents, mortgage notes receivable, accounts receivable and payables and accrued liabilities all approximate fair value due to their short-term nature. 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 . The Company records depreciation and amortization expense using the straight-line method over the useful lives of the respective assets. 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.   52 Table of Contents   Earnings per share ( “ EPS ” ). 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 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.   Revenues.   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 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 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 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 .   Asset Impairments . 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 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.   53 Table of Contents   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, 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 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. 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 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, 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:   State   No. of Properties     Aggregate Square Feet     Approximate % of Square Feet     Current Base Annual Rent     Approximate % of Aggregate Annual Rent   California     2       113,617       12.9 %   $ 1,805,085       15.6 % Colorado     5       325,676       37.1 %     5,603,269       48.5 % Maryland     1       31,752       3.6 %     682,668       5.9 % North Dakota     4       397,085       45.2 %     3,151,646       27.3 % Texas     1       10,500       1.2 %     322,875       2.8 % Total     13       878,630       100 %   $ 11,565,543       100 %   The following table shows a list of our Model Home properties by geographic region as of December 31, 2021:   Geographic Region   No. of Properties     Aggregate Square Feet     Approximate % of Square Feet     Current Base Annual Rent     Approximate % of Aggregate Annual Rent   Southwest     88       266,228       95.6 %   $ 2,501,580       94.0 % Southeast     1       2,381       0.9 %     22,524       0.8 % Midwest     1       3,663       1.3 %     57,420       2.2 % Northeast     2       6,153       2.2 %     80,844       3.0 % Total     92       278,425       100 %   $ 2,662,368       100 %     54 Table of Contents   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 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, 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 $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. 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.   55 Table of Contents   Cash, Cash Equivalents and Restricted Cash   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.   Secured Debt   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, 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, 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   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. We may spend more on capital expenditures in the future due to rising construction costs and the anticipated increase in property acquisitions. 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.   56 Table of Contents   Financing Activities:  Net cash used in financing activities during the year ended December 31, 2021   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; and     • 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   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.     ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Not required.     ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   The financial statements required by this item are filed with this report as described under Item 15.   57 Table of Contents     ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   None.