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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-16 · 201 added, 216 removed, 232 unchanged (64% of the section changed)

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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, 2024, including properties held for sale, the Company owned or had an equity interest in:

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Three retail shopping centers (“Retail Properties”) which total approximately 65,242 rentable square feet, and

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

78 model homes owned totaling approximately 236,955 square feet, by four 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 five states, primarily in Texas.

Our Model Home Properties are located in three 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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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 sale-leaseback transaction.

These tenants are subjected to financial review and analysis prior to us entering into a sale-lease transaction.

Our ownership of the underlying property provides a further means to avoiding significant credit losses.

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During year ended December 31, 2023, we disposed of the following properties:

World Plaza, which was sold on March 11, 2022, for approximately $10.0 million and the Company recognized a loss of approximately $0.3 million.

22 model homes for approximately $11.7 million and the Company recognized a gain of approximately $3.2 million.

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Immediately following the consummation of the business combination, the Company transferred 45,000 shares of Conduit common stock and warrants to purchase 45,000 shares of Conduit common stock to the SPAC’s independent directors as compensation for their services.

As a result, the Company owned approximately 6.5% of Conduit’s common stock immediately following the business combination and currently owns approximately 6.3% of Conduit ’ s common stock.

As a result, the Company owned approximately 6.5% of Conduit’s common stock immediately following the business combination and currently own less than 1% of Conduit’s common stock.

In connection with the business combination, the Company’s officers and directors who also served as officers and directors of the SPAC resigned from the SPAC, with the exception of the Company’s former Chief Financial Officer who resigned from the Company.

ECONOMIC ENVIRONMENT

According to Nareit's, the National Association of Real Estate Investment Trusts, 2024 REIT Market Outlook, published on its website in December 2023, economic uncertainty, which began in 2022 and created a difficult environment for REIT share prices, will likely be an ongoing theme in 2024.

For example, as the 10-year Treasury yield increased nearly 3% and REIT implied cap rates rose from 4.5% to nearly 6.5%, REIT share prices fell by 21.4% from the beginning of 2022 through December 1, 2023.

As of the third quarter of 2023, the REIT implied and appraisal cap rate spread has remained wide as property appraisals have been slow to adjust to current market conditions.

The REIT implied and private transaction-based cap rate spread was 170 bps.

The REIT implied and private appraisal-based cap rate spread was 216 bps.

According to Nareit, these great divides indicate serious disparities between today’s public and private real estate valuations.

The potential valuation impacts associated with transaction and appraisal cap rates moving to the REIT implied cap rate are significant.

All else equal, closing the REIT implied–transaction gap would require private value write-downs of more than 25%;

the declines would need to exceed 30% to eliminate the REIT-implied appraisal spread.

Though these valuation adjustments represent extreme scenarios, significant rises in transaction and appraisal cap rates are warranted and further material write-downs are likely on the horizon for the private real estate market.

Nareit noted three hopeful signs for a meaningful REIT recovery in 2024 and beyond:

REITs have typically enjoyed strong absolute and relative total return performances after monetary policy tightening cycles end.

The valuation divergence between REITs and private real estate will likely converge in 2024, making REITs an attractive option for investors.

Solid balance sheets will enable REITs to navigate ongoing economic uncertainty while providing an advantage in terms of acquisitions and growth.

CREDIT MARKET ENV IRONMENT

Current market rates in February 2024 on fixed rate mortgages on homes range from 6.15% - 7.29%, depending on the term (1) .

Current market rates for 5–10 year fixed rate loans for commercial properties range from 6.71% - 6.84%, depending on the type of building (retail/industrial/office) (2) .

Interest rates increased in 2023 compared to 2022 due to the Federal Reserve raising interest rates 100 basis points, or 1%, in hopes of slowing down inflation going from 4.5% in December 2022 to 5.5% in July 2023.

The Federal Reserve chose not to raise rates in September 2023, November 2023, December 2023, and January 2024, most recently noting “ Recent indicators suggest that economic activity has been expanding at a solid pace.

Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.

Inflation has eased over the past year but remains elevated ” (3) .

Although rates increased in 2023, it does not necessarily indicate that we would be unable to refinance or obtain mortgages on new homes or commercial properties at the same rate we have historically when they come due, as rates vary by property and are dependent upon factors including property cash flows, occupancy rates and lender credit.

https://www.bankrate.com/finance/mortgages/current-interest-rates.aspx

According to Nareit's, the National Association of Real Estate Investment Trusts, 2025 REIT Market Outlook, as discussed at the FTSE Nareit U.S.

Real Estate Indexes in Review and What’s Next webinar on January 14, 2025, "there is a real possibility for an environment with both moderating interest rates and robust economic growth, otherwise known as an economic soft landing.

Nevertheless, there are both lingering and emerging risks, including soft property fundamentals in some sectors, higher interest rates reflecting fiscal imbalances, and the possibility that shifting tariff policies could restrain commercial real estate (CRE) performance in 2025." Current U.S.

economic conditions that seem to support a soft landing according to Nareit are:

Real gross domestic product (GDP) increased at an annual rate of 2.8% in the third quarter of 2024, according to the “second” estimate.

Total nonfarm employment increased by 227,000 jobs and the unemployment rate was 4.2% in November 2024.

The Consumer Price Index for All Urban Consumers (CPI) increased 2.7% over the 12 months through November 2024 and core CPI (excluding food and energy) rose 3.3%.

Through November, the Federal Open Market Committee (FOMC) reduced its target policy rate range twice in 2024;

it now stands at 4.50% to 4.75%.

As of November 2024, the Bloomberg consensus forecast survey placed the probability of a U.S.

recession within the next 12 months at 25%;

it was 30% in September.

According to Nareit, the lingering public-private real estate valuation phenomenon has impeded significant property transaction activity.

Despite reaching its crest two years ago, the spread between REIT implied and private appraisal cap rates has been stubbornly slow to close.

Recent REIT performance, however, has made material progress in closing the gap.

The long goodbye to the current valuation divergence may finally be reaching its end.

Quarterly total return differences and cap rate spreads have a negative relationship, for example:

When REITs had the greatest degree of outperformance (+22.8%) in the fourth quarter of 2023, the cap rate spread plunged by 94 bps.

When REITs experienced the greatest degree of underperformance (-19.5%) in the second quarter of 2022, the cap rate spread surged by 79 bps.

When REITs outperformed (+16.5%) in the third quarter of 2024, the cap rate spread dropped to 69 bps, a level less than half its previous quarter’s value.

The chart below displays occupancy rates for the four traditional property types from the fourth quarter of 2008 to the third quarter of 2024.

In recent years, the retail sector has enjoyed a rising occupancy rate, but it appears to have plateaued.

In contrast, occupancy rates for the apartment and industrial sectors have dropped off in the face of record amounts of new supply following record rent growth in the past few years.

Office occupancy reflects a shifting and uncertain demand environment with the advent of more widespread remote work.

As of the third quarter of 2024, CoStar occupancy rates for the retail, industrial, apartment, and office sectors were 95.9%, 93.4%, 92.1%, and 86.1%, respectively.

Occupancy rate trends will likely weigh on future property operational performance.

They also underscore the need for realism in investment underwriting (1) .

https://www.reit.com/news/blog/market-commentary/reit-cre-outlook-evolution-2025

CREDIT MARKET ENVIRONMENT

Current market rates in February 2025 on fixed rate mortgages on homes ranged from 6.15% - 6.98%, depending on the term (2) .

Current market rates for 5–10 year fixed rate loans for commercial properties ranged from 5.55% - 6.88%, depending on the type of building (retail/industrial/office) (3) .

Interest rates decreased in 2024 compared to 2023 due to the Federal Reserve cutting interest rates 100 basis points, or 1%, in hopes of slowing down inflation going from 5.5% in July 2023 to 4.5% in December 2024.

According to the Federal Reserve "The Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent.

In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.

The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.

The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective” (4).

Although rates decreased in 2024, it does not necessarily indicate that we would be unable to refinance or obtain mortgages on new homes or commercial properties at the same rate we have historically when they come due, as rates vary by property and are dependent upon factors including property cash flows, occupancy rates and lender credit.

As noted by Colliers Securities in its Q32024 Office Outlook:

office market ended 2024 with early signs of stability as metrics improved throughout the year, and much less space was returned to the market than in 2023.

However, strong headwinds in 2025 suggest an uneven recovery and likely several bumps over the next few years.

Occupiers continue to reduce space as their leases expire but are likely to upgrade to a higher quality space and building.

Despite headlines focused on large companies' return-to-office efforts, most have evolved their office operations, embracing flexibility to encourage productivity.

Large, sprawling campuses are being rethought, with the potential for redevelopment opportunities."

https://www.bankrate.com/mortgages/mortgage-rates/#mortgage-news

https://selectcommercial.com/commercial-mortgage-rates.php

https://www.federalreserve.gov/newsevents/pressreleases/monetary20250129a.htm

As noted by Colliers Securities in its February 2024 Industry Notes:

Going forward the Federal Reserve has put the REITs in a favorable position with rate cuts anticipated in the latter half of 2024.

With the tightening cycle in effect for most of 2023, we anticipate the transaction market should return as interest rates stabilize or move lower.

This should allow many REITs to re-accelerate their growth rates as acquisitions were few for many of the REITs in 2023.

The other component for a healthy transaction market is sellers' need to adjust their price expectations.

Borrowing at rates of approximately 3% are no longer realistic in the near future.

With interest rates off their highs and REIT stock prices off their lows, opportunities for acquisitions may make sense for many REITs' cost of capital.

The Collier Securities report further noted the following:

Industrial - The industrial sector, marked by its resilience, witnessed a steady increase in cap rates from March to September, reaching a peak at 6.39%.

Subsequently, there was a gradual decline, and in January the trend reversed, and industrial cap rates surpassed those of other sectors, now being the sector with the highest cap rates at 6.24%, We view this more of the mix of assets transacting rather than a trend that investors are not attracted to the sector.

In January, the industrial real estate sector exhibited a range of noteworthy changes in cap rates across cities.

San Antonio emerged as the city with the highest cap rate at 8.72%, while Atlanta recorded the lowest rate at 4.57%.

Notable increases were observed in Houston, with a significant rise from 7.08% in December to 7.50% in January.

Similarly, San Antonio experienced a substantial surge from 6.19% to 8.72%, reflecting more a mix in assets.

Conversely, Tampa saw a decrease from 5.42% to 3.95%, and Salt Lake City exhibited resilience with a drop from 6.40% to 6.10%.

The diverse spread in cap rates highlights varied risk and return profiles across cities, emphasizing the need for investors to carefully assess local market dynamics.

While the industrial sector, overall, demonstrates a broad upward trend in cap rates, with an average increase of 0.23% compared to December, we would not over read into this increase.

Retail - The retail sector underwent a series of fluctuations, showcasing the most significant variance among the sectors.

Initially positioned with mid-range cap rates, retail surpassed office in December, reaching the highest cap rate at 6.48%.

However in January, the retail sector experienced a decline in cap rates, which shows just how much these cap rates can move month-to-month given the low transaction volume.

The highest cap rate is observed in Phoenix at 8.01% while Nashville experiences the lowest at 4.30%.

Noteworthy changes from December to January include Houston's cap rate increasing from 5.54% to 5.93%.

Los Angeles and Las Vegas both record a slight decrease from 5.20% in December to 4.76% in January and from 6.13% to 5.20%, respectively, reflecting nuanced adjustments in their respective markets.

Phoenix maintains its position with notable cap rate expansions from 7.00% to 8.01%.

Office - In January, office cap rates decreased to an average of 6.03% from 6.27% in December.

Notably, the office sector no longer holds the highest cap rates, with some cities exhibiting slight shifts in market dynamics.

The office real estate market demonstrates city-specific dynamics, with wide-ranging cap rates.

Columbus records the lowest cap rate of 4.65%, down from 6.00% in December, followed by San Jose at 4.80%.

Indianapolis stands out with the highest cap rate at 9.62%, followed by Los Angeles with a cap rate of 7.74%, a significant increase from 5.00% in December.

On the other hand, New York's cap rate increases from 6.00% to 6.83%.

Cap rates can have a wider range as there is a large bifurcation between A & B assets.

Going forward returning federal employees to offices five days a week could positively impact office occupancy, according to Colliers.

However, initiatives to reduce overall leased space could negatively affect markets with a significant federal presence.

Opportunities for the private sector to buy federally owned properties could stimulate redevelopment or conversion to another use, primarily if local municipalities assist with efforts to streamline approvals.

Capital markets have been rebounding, noted Colliers.

Price adjustments are leading investors back into the office market.

While sales are not at pre-pandemic levels, Colliers noted that volume topped $21 billion in the fourth quarter, nearing year-end 2022 levels.

Total sales increased 36% compared to one year ago, with central business district activity rebounding.

Office sales have more than doubled from one year ago and have had the largest quarterly volume since first-quarter 2022.

MANAGEMENT EVALUATION OF RESULTS OF OPERATIONS

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Our results of operations for the years ended December 31, 2024 and 2023 may not be indicative of those expected in future periods.

Management does not expect the level of expenses and interest income, resulting from our investment in and consolidation of Murphy Canyon Acquisition Corp, to continue in the near future, since the de-SPAC and deconsolidation of that entity in September 2023.

The de-SPAC resulted in the Company having an investment in Conduit Pharmaceuticals which totaled approximately $18.3 million as of December 31, 2023, with a cost basis of approximately $7.5 million.

Management does not expect the level of administrative expenses related to the 2024 annual meeting and the switching external auditors will be repeated in 2025.

Additionally the de-SPAC transaction in 2023 resulted in the Company having an investment in Conduit which totaled approximately $18.3 million as of December 31, 2023, with a cost basis of approximately $7.5 million.

The Company entered into a lock-up agreement with Conduit regarding the common stock held by the Company, for 180 days from the closing of the business combination which ended March 20, 2024.

Management is still considering the best course of action to monetize our investment.

During 2023, elevated real estate prices in commercial real estate, increasing interest rates on lending, and compressing capitalization rates have made it challenging to acquire properties that fit our portfolio needs.

Due to the declining stock price of Conduit, the Company was unable to monetize our investment.

As of December 31, 2024, the investment in Conduit was valued at approximately $0.2 million.

As a result, we did not find any suitable commercial properties to acquire during 2024, but we were able to acquire 19 Model Home Properties.

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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 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 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.

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.

We regularly review for impairment on a property-by-property basis.

Impairment is recognized on a property held for use when the expected undiscounted cash flows for a property are less than the carrying amount at which time the property is written-down to fair value.

Impairment is recognized on a property held for sale when the fair value less costs to sell is less than the carrying amount.

The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows that are determined based on a number of inputs and assumptions such as the intended hold period, market rental rates, leasing assumptions, capitalization rates and discount rates.

Actual results could be significantly different from the estimates.

Although our strategy is to hold our properties over the long-term, if our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to fair value and such loss could be material.

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.

Lease intangibles represent 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.

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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, rental revenue begins when the tenant takes possession or has control of the physical use of the leased space and any tenant improvement allowance, 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;

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.

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 .

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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, 2023 and December 31, 2022, our marketable securities (excluding our investments in Conduit's common stock and common stock warrants), held at a third party broker, presented on the balance sheet were measured at fair value using Level 1 market prices and totaled approximately $45,149 and $0.8 million, respectively, with a cost basis of approximately $40,315 and $0.9 million, respectively.

Additionally, the funds held in the Trust Account for the SPAC Class A common stockholders included a money market portfolio that was comprised of U.S.

Treasury securities, considered cash equivalent, which were measured at fair value using Level 1 and totaled approximately $0 million and $136.9 million as of December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2024 and December 31, 2023, our marketable securities (excluding our investments in Conduit's common stock and common stock warrants), held at a third party broker, presented on the balance sheet were measured at fair value using Level 1 market prices and totaled approximately zero and $45,149, respectively, with a cost basis of approximately zero and $40,315, respectively.

Our investments in Conduit's common stock and common stock warrants presented on the consolidated balance sheets were measured at fair value using Level 1 market prices, which are currently held at Conduit's transfer agent, taking into account the adoption of ASU 2022-03 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , and totaled approximately $0.2 million as of December 31, 2024, with a cost basis of approximately $7.5 million.

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Fair Value Measurements as of December 31, 2024

Impairment Loss

Goodwill for Dubose Model Homes

Goodwill for NTR Property Management

Certain Real Estate assets

The following table presents as of December 31, 2023 the Company’s assets subject to measurement at fair value on a nonrecurring basis (in thousands):

Fair Value Measurements as of December 31, 2023

Impairment Loss

Goodwill for Dubose Model Homes

Goodwill for NTR Property Management

Certain Real Estate assets

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.

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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.

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.

Dilutive common stock equivalents include the dilutive effect of in-the-money stock equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common stock equivalents if their effect would be anti-dilutive.

In periods in which a net loss has been incurred, all potentially dilutive common stock shares are considered anti-dilutive and thus are excluded from the calculation.

Securities that are excluded from the calculation of weighted average dilutive common stock, because their inclusion would have been antidilutive, are:

For the Year Ended December 31,

Common Stock Warrants

Placement Agent Warrants

Series A Warrants

Unvested Common Stock Grants

Total potentially dilutive shares

RESULTS FROM OPERATIONS FOR THE YEARS ENDED December 31, 2024 AND 2023

Our results from operations for 2024 and 2023 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 $17.6 million for the year ended December 31, 2023, compared to approximately $17.8 million for the same period in 2022, a decrease of approximately $0.2 million or 1%.

The decrease in rental income reported in 2023 compared to 2022 is directly related to the non-renewal of our largest tenant, in 2022, Halliburton, located in Shea Center II at December 31, 2022.

This was offset by the increase in model home income, as our model home portfolio grew from 92 at December 31, 2022 to 110 at December 31, 2023.

Rental Operating Costs .

Rental operating costs were approximately $6.0 million for the year ended December 31, 2023 compared to approximately $5.8 million for the same period in 2022, an increase of approximately $121,522 or 2%.

Rental operating costs as a percentage of total revenue was 33.8% and 32.9% for the years ended December 31, 2023 and 2022, respectively, as office property expenses continue to increase, specifically insurance costs.

As of December 31, 2023 our model home assets made up 35% of our total real estate assets, which is up from 28% as of December 31, 2022, and our gross revenue from model home assets represented approximately 23% of our total revenue.

This percentage is expected to increase in 2024 as the percentage of our model home real estate assets has increased.

There were no acquisitions or sales of retail, office or industrial properties during the year ended December 31, 2023, resulting in an expected decreases in the percent of gross revenues from those assets during 2024.

Management does expect to see activity in sales in our commercial real estate assets in the near future.

During the year ended December 31, 2023, the material impact to office property expense was an impairment as noted below.

Total revenue was approximately $18.9 million for the year ended December 31, 2024, compared to approximately $17.6 million for the same period in 2023, an increase of approximately $1.3 million or 7.3%.

As of December 31, 2024, we had approximately $127.6 million in net real estate assets including 78 model homes, compared to approximately $144.2 million in net real estate assets including 110 model homes at December 31, 2023.

The average number of model homes held during the years ended December 31, 2024 and 2023 was 94 and 101, respectively.

The change in revenue is directly related to the increase in model home transaction fees during the current period, new commercial real estate leases, mainly at Grand Pacific Center, and the management fees earned from Conduit during the current period, which was terminated in June 2024.

Below is additional revenue and asset information for real estate segments as of December 31, 2024 and December 31, 2023.

% of Gross Revenue for the year ended

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Office/Industrial

Rental Operating Costs .

Rental operating costs were approximately $6.3 million for the year ended December 31, 2024 compared to approximately $6.0 million for the same period in 2023, an increase of approximately $0.3 million or 4.9%.

Rental operating costs as a percentage of total revenue were 33.1% and 33.8% for the years ended December 31, 2024 and 2023, respectively, as office property expenses continue to increase, specifically insurance costs.

As of December 31, 2024 our model home assets made up 29% of our total real estate assets, which is down from 35% as of December 31, 2023, and our gross revenue from model home assets represented approximately 23.4% of our total revenue.

This percentage is expected to increase in 2025 as the percentage of our model home real estate assets has increased, with the sale of Union Town Center and Research Parkway in February 2025, which will reduce future rental income until those proceeds are reinvested but it will also reduce rental operating costs.

The sale of our Dakota Center building will also reduce rental operating costs.

General and Administrative .

General and administrative (“G&A”) expenses were approximately $7.5 million for the year ended December 31, 2024, compared to approximately $6.8 million for the same period in 2023, representing an increase of approximately $0.7 million or 10.8%.

As a percentage of total revenue, our general and administrative costs was approximately 38.5% and 34.7% for the years ended December 31, 2023 and 2022, respectively.

The G&A expense for the years ended December 31, 2022 was affected by a reduction in payroll costs totaling approximately $878,000, which included employee retention credits ("ERC") and decreased stock compensation, offset by the increase in D&O insurance for the SPAC totaling approximately $465,000 and higher accounting and consulting fees of approximately $412,000.

There were no ERC payments to offset payroll costs in 2023 leading to higher overall payroll costs.

Consolidated G&A expenses related to SPAC totaled approximately $1.0 million and $0.9 million for the years ended December 31, 2023 and 2022, respectively.

As a percentage of total revenue, our general and administrative costs were approximately 39.8% and 38.5% for the years ended December 31, 2024 and 2023, respectively.

G&A expenses increased by approximately $0.5 million mainly related to the 2024 annual meeting and settlement with Zuma Capital and certain individuals and entities affiliated or associated with Zuma Capital Management, LLC ("Zuma Capital").

This included additional consulting fees, higher proxy solicitation fees and legal fees, which increased by an aggregate of approximately $0.6 million in 2024 as compared to 2023.

Additionally, employee, ex-officer and board costs, including stock compensation and bonus accruals increased during the year ended December 31, 2024 by approximately $0.5 million as compared to the same period in 2023 related to De-SPAC success bonuses to current and former employees.

This was slightly offset by the approximately $0.2 million reduction of D&O insurance related to the SPAC in 2023 that was not consolidated during 2024.

Depreciation and Amortization .

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During the year ended December 31, 2024, we recognized a non-cash impairment charge of approximately $2.0 million on goodwill and our real estate assets.

Of the $3.2 million impairment for the year, approximately $2.0 million was related to our One Park Center property, approximately $0.4 million was related to eight model homes, and approximately $0.8 million was related to goodwill impairment.

This impairment charge for One Park Center reflects 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 impairment charge for the eight model homes reflects the estimated sales prices for these specific model homes in 2024 as a result of an abnormally short hold period, less than two years, on model homes purchased in 2022, where the builder changed their product type in these neighborhoods after we had purchased the homes.

Of the $2.0 million impairment for the year, approximately $1.4 million was related to our commercial properties Dakota Center and 300 NP, approximately $0.4 million was related to model homes, and approximately $0.2 million was related to goodwill impairment.

The impairment on our commercial property, Dakota Center, was the result of the loan maturing in July and the Company not being able to reach an agreement with the lenders regarding a loan modification or extension.

In October, the lender has agreed to a sale of the property to settle the balance of the non-recourse loan.

Due to the uncertainties in the Fargo market, we concluded it was necessary to impair the property’s book value, in accordance with ASC 360-10.

As such, we recorded an impairment charge of approximately $0.7 million, during September 2024.

The impairment on 300 NP, totaling approximately $0.7 million related to changing cap rates in the area and low historical occupancy.

This property is not listed for sale and has no debt.

The new impairment charges for the model homes reflects the estimated and actual sales prices for these specific model homes that were sold after the end of each quarter.

This was the result of an abnormally short hold period, less than two years, on model homes purchased in 2022.

The builder changed their product style in the neighborhoods where these model homes are located, in Texas, after we had purchased the homes.

We do not believe these losses are indicative of our overall model home portfolio.

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The impairment to goodwill was related to NTR Property Management and the fair market value adjustment based on future expected cash flows.

The Company did not recognize a non-cash goodwill or real estate impairment during the year ended December 31, 2022.

During the year ended December 31, 2023, we recognized a non-cash impairment charge of approximately $3.2 million related to goodwill and model homes.

The impairment charge for One Park Center reflects 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.

Interest Expense-mortgage notes.

Interest expense, including amortization of deferred finance charges was approximately $6.1 million for the year ended December 31, 2024 compared to approximately $5.0 million for the same period in 2023, an increase of approximately $1.0 million, or 20.9%.

The increase in mortgage interest expense relates to the increase mortgage debt on our commercial properties and model homes.

During the year ended 2023 our total mortgage debt increased from $97.8 million at December 31, 2022 to $108.5 million at December 31, 2023 in connection with the acquisition of new model homes and our weighted average interest rate increased from 4.57% to 5.18% over the same time period.

The increase in mortgage interest expense relates to the increase in weighted average interest rate from 5.18% to 5.63% over the same time period.

With the sale of our commercial properties in 2025, we will expect interest expense to decrease.

Gain on Sale of Real Estate Assets.

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Management's Discussion and Analysis of Financial Condition and Results of Operations—Significant Transactions in 2024 and 2023 above for further detail.

Income Tax Expense / Credit.

For the year ended December 31, 2023, the Company recorded an expense of approximately ($0.3)million 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 recorded an income tax credit of approximately $1.2 million, for the year ended December 31, 2022.

The reduction in taxes can be attributed to a lower gain on sale of model homes in 2023 as compared to 2022 as well as the deconsolidation of the SPAC, and the SPAC's income tax expense, in September 2023.

Consolidated income tax expenses related to the SPAC totaled approximately $0.4 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.

Income Tax Expense / Benefit.

For the year ended December 31, 2023, the Company recorded a benefit of approximately $335,780 related to estimated refunds from federal and state taxes for capital gains from the sale of model homes held by the taxable REIT subsidiary.

For the year ended December 31, 2024, the Company recorded an expense of approximately $60,855 related to federal and state taxes for capital gains from the sale of model homes held by the taxable REIT subsidiary.

Income allocated to non-controlling interests.

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Gain on deconsolidation of SPAC and remeasurement.

Following the completion of the Murphy Canyon IPO in February 2022, we determined that Murphy Canyon is a Variable Interest Entity ("VIE") in which we had a variable interest because Murphy Canyon did not have enough equity at risk to finance its activities without additional subordinated financial support.

Since the business combinations with Conduit on September 22, 2023, we have determined that Conduit’s (formally Murphy Canyon) public stockholders have substantive rights and we no longer have control of Conduit’s activity.

Since we are no longer the controlling party, or have a majority of the issued and outstating common stock, the Company deconsolidated Conduit from our consolidated financial statements.

In connection with the deconsolidation we recorded a gain of approximately $40.3 million.

On April 22, 2024, the Company entered into a lockup agreement with Conduit pursuant to which the Company agreed not to transfer or sell 2,700,000 of its 4,015,250 shares of Conduit common stock for a period of one year.

In consideration for entering into the lockup agreement, Conduit issued the Company warrants to purchase 540,000 shares of common stock at an exercise price of $3.12 per share, a two year term and exercisable one year after the date of issue (the "Private CDT Warrants").

The Private CDT Warrants meet the ASC 321 scope exception for derivative instruments and are accounted for as a derivative under ASC 815.

As such, the Private CDT Warrants were recorded at fair value on the date of issuance and subsequently measured at fair value each period, with changes in fair value reported in gain or loss on Conduit marketable securities.

As of April 22, 2024, the Private CDT Warrants were valued at $891,000 based on a Level 3 fair value measurement.

As of December 31, 2024, the Private CDT Warrants fair value was adjusted to zero, which is included in the total Investment in Conduit marketable securities on the December 31, 2024 consolidated balance sheet.

Our investments in Conduit's common stock (2,944,514 shares of CDT) and public common stock warrants (709,000 warrants of CDTTW) presented on the consolidated balance sheets were measured at fair value using Level 1 market prices, taking into account the adoption of ASU 2022-03 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, and totaled approximately $0.2 million as of December 31, 2024.

The combined value of our Investment in Conduit marketable securities, including the Private CDT Warrants, totaled $0.2 million as of December 31, 2024, resulting in a net loss on investment for the year ended December 31, 2024 totaling approximal $17.9 million.

During the year ended December 31, 2023, and in connection with the deconsolidation we recorded a gain of approximately $40.3 million.

Of the total gain recognized on deconsolidation, approximately $34.1 million relates to the remeasurement of our retained investment in Murphy Canyon via the Sponsor shares which converted into shares of Conduit's common stock on September 22, 2023, and approximately $6.2 million relates to the deconsolidation of Murphy Canyon's assets and liabilities as of September 22, 2023.

Since deconsolidating Conduit, on September 22, 2023, our investments in Conduit's common stock and common stock warrants presented on the consolidated balance sheets were measured at fair value using Level 1 market prices, taking into account the adoption of ASU 2022-03

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , and totaled approximately

$18.3 million as of

December 31, 2023, with a cost basis of approximately $7.5 million.

The Company entered into a lock-up agreement with Conduit regarding the common stock held by the Company, for 180 days from the closing of the business combination which ended on March 20, 2024.

Since deconsolidating Conduit, on September 22, 2023, our investments in Conduit's common stock and common stock warrants presented on the consolidated balance sheets were measured at fair value totaled approximately $18.3 million as of December 31, 2023, with a cost basis of approximately $7.5 million.

This resulted in net loss on investment for the year ended December 31, 2023 totaling approximal $23.4 million.

During October 2024, the Company paid part of an accrued bonus to the former CFO with shares of CDT common stock.

The total number of CDT common stock shares transferred to our former CFO was 1,045,805 shares at $0.1087 per share with a fair market value of $113,679 at the time of transfer.

After the transfer the Company still owned 2,944,514 shares of CDT common stock, 709,000 CDTTW warrants and 540,000 private warrants.

Since December 31, 2024, CDT has affected a 1-for-100 reverse stock split of the CDT common stock, resulting in our 2,944,514 shares being converted into 29,445 shares.

Geographic Diversification Tables

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Approximate % of Aggregate Annual Rent

North Dakota (1)

The following table shows a list of our Model Home Properties by geographic region as of December 31, 2024:

Geographic Region

of Properties

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LIQUIDITY AND CAPITAL RESOURCES

Our anticipated fut ure sources of liquidity may include existing cash and cash equivalents, cash flows from operations, refinancing of existing mortgages, future real estate sales, new borrowings from our model home lines of credit, the sale of our investment in Conduit Pharma, and the sale of our equity or issuance of debt securities or bonds.

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 from our model home lines of credit, and the sale of our equity or issuance of debt securities or bonds.

Our cash and restricted cash at December 31, 2024 was approximately $8.0 million.

Our future capital needs include paying down existing borrowings, maintaining our existing properties, funding tenant improvements, paying lease commissions (to the extent they are not covered by le nder-held reserve deposits), and the payment of dividends to our stockholders.

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 model home investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders.

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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 2024, total appr oximately $23.5 million , of which $13.1 million is related to model home propertie s.

During the next 12 months our four commercial property loans, Dakota Center, Research Parkway, Arapahoe Service Center and Union Town Center, have mortgage loans with maturity dates, totaling approximately $26.1 million.

Future principal payments due on our mortgage notes payables during 2025, total approximately $38.8 million, of which $8.3 million is related to model home properties.

During the next 12 months our four commercial property loans, Dakota Center, Research Parkway, Union Town Center, Genesis Plaza and Shea Center II, have mortgage loans with maturity dates, totaling approximately $30.1 million.

The Dakota Center loan matured in July 2024, and will be settled when the property is sold, which is expected to sell in the next 12 months.

Management has begun discussions with various lenders to either restructure, extend or refinance these loans.

Additionally, management may consider selling these properties if we are unsuccessful in extending the maturity dates or are unable to raise additional funds to pay these non-recourse loans in full.

Only the loan on Research Parkway, for $1.6 million has recourse to the Company.

Management expects certain model homes 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 ha s done in the past.

Additional details for maturing loans are as follows:

Dakota Center (Fargo) (July 2024):

We have been in negotiations with the lender and their special servicer of the loan since May 2024 regarding an extension or modification of the non-recourse loan;

however, the lender's final decision was to have the Company sell the property on the open market with a real estate broker.

The current loan balance is approximately $9.1 million, and our book value is approximately $8.3 million, after a $0.7 million impairment taken in Q3 2024.

On October 17, 2024, we also provided an unsolicited offer from Edgewood Properties for $8.0 million, but the lender has asked the Company to conduct a market sale for the property to recover the maximum proceeds to repay the non-recourse loan.

The lender rejected this offer and we are proceeding with the open market sale.

In January 2025, we finalized the broker agreement with CBRE to sell the property.

CBRE has the property listed without a sales price, but has a cashflow model with the target sales price at $9.0 million.

The lender will have final say on approval of a purchase offer and closing price, so there can be no guarantee CBRE will be able to achieve a $9.0 million sales price.

Either way, this is a non-recourse loan and will not affect our future cash flow if it sells for less than the loan amount.

Union Town Center (January 2025) and Research Pkwy (January 2025):

We have listed the properties for sale as of December 31, 2024.

The Company was able to obtain a short term extension with the lenders in order to accommodate the close date for the sale.

The sale took place on February 6, 2025, with a price of $16,950,000 for both UTC and Research Parkway.

Internally, we allocated the purchase price at 80.2% to UTC and 19.8% to Research Parkway, based on total square feet, book value and adjusted book value to the liabilities and assets to be eliminated at the closing.

We received $6.37 million in cash proceeds from the sale and additional funds post-closing from the lender's reserve accounts.

One Park Centre – We have begun exploring refinancing options with our current broker at NorthMarq to pay off the current loan at maturity.

The property’s current occupancy is 85.7% and has positive cash flow.

During the year, we have invested approximately $275,000 in building and tenant improvements for the property.

Genesis Plaza – We have begun exploring refinancing options with our current broker at NorthMarq to pay off the current loan at maturity.

The property’s current occupancy is 95.6% and has positive cash flow.

During the year, we have invested approximately $74,000 in building and tenant improvements for the property, expanded the space for our tenant Meissner and extended the term of their lease to 2035, and reduced the space used by the Company.

On January 1, 2025, Meissner took possession of the expanded space and Genesis Plaza was 100% leased.

Shea Center II - We will begin exploring refinancing options with our current broker at NorthMarq to pay off the current loan at maturity during April and May.

The property’s current occupancy is 68.9% and has positive cash flow.

We are still working to fill the vacant Halliburton space.

During the year ended December 31, 2024, the Company has invested approximately $275,000 in building and tenant improvements for the property.

Additional principal payments will be made with cash flows from ongoing operations.

On December 31, 2022, the lease for our largest tenant at that time, Halliburton, expired.

Halliburton was located in our Shea Center II property in Colorado and did not renew the lease.

We placed approximately $1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, in connection with Halliburton's vacant space, none of which has been used as of December 31, 2023.

This reserve amount is included in "Cash, cash equivalents and restricted cash" on the balance sheet.

Our management team is working to fill the 45,535 square foot space and has leased approximately 20% of the space to a tenant during 2023 and has reviewed various third party proposals for the remaining 80%.

As of December 31, 2023, none of the third party proposals have fit into our long-term plans.

We will continue to work on filling the space during 2024.

While we will continue to pursue value creating investments, the Board of Directors believes there is significant embedded value in our assets that is yet to be realized by the market.

Therefore, returning capital to stockholders through a repurchase program is an attractive use of capital currently.

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, which expired in September 2022.

On September 15, 2022, the Board of Directors authorized a stock repurchase program of up to $6.0 million of outstanding shares of our Series A Common Stock and up to $4.0 million of our Series D Preferred Stock, which expired in September 2023.

During the year ended December 31, 2022, the Company repurchased 196,631 shares of our Series A Common Stock at an average price of approximately $1.59 per share, including a commission of $0.035 per share, and 6,013 shares of our Series D Preferred Stock at an average price of approximately $20.31 per share, including a commission of $0.035 per share, for a total cost of $313,578 for the Series A Common Stock and $122,141 for the Series D Preferred Stock.

In November 2023, the Board of Directors authorized a stock repurchase program of up to $6.0 million of outstanding shares of our Series A Common Stock and up to $4.0 million of our Series D Preferred Stock which shall expire in November 2024.

During the year ended December 31, 2023, the Company repurchased 23,041 shares of our Series D Preferred Stock at an average price of approximately $16.06 per share, including a commission of $0.035 per share, and no shares of our Series A Common Stock, for a total cost of $0.4 million for the Series D Preferred Stock.

The repurchased shares will be treated as authorized and unissued in accordance with Maryland law and shown as a reduction of stockholders’ equity at cost.

In December 2024, the Board of Directors authorized a stock repurchase program of up to $6.0 million of outstanding shares of our Series A Common Stock and up to $4.0 million of our Series D Preferred Stock, which shall expire in December 2025.

During the year ended December 31, 2024, we repurchased 190,640 shares of our Series A Common Stock, for a total cost of $140,416, with an average price of approximately $1.10 per share, including a commission of $0.025 per share.

During the year ended December 31, 2024, the Company repurchased 2,918 shares of our Series D Preferred Stock at an average price of approximately $14.02 per share, including a commission of $0.035 per share, for a total cost of $40,910 for the Series D Preferred Stock.

Any repurchased shares are treated as authorized and unissued in accordance with Maryland law and shown as a reduction of stockholders’ equity at cost.

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.

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We believe that cash on hand, cash flow from our existing portfolio, distributions from joint ventures in Model Home Partnerships and property sales during 2025 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 n ot 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 or suspend the rate of dividends to our stockholders.

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 or suspend the rate of dividends to our stockholders.

Our long-term liquidity needs include proceeds necessary to grow and maintain our portfolio of investments.

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The following is a summary of distributions declared per share of our Series A Common Stock and for our Series D Preferred Stock for the years ended December 31, 2024 and 2023.

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

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

The Board has not indicated when it will resume approving dividends on our Series A Common Stock.

Quarter Ended

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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 the years ended December 31, 2023 and 2022 , we did not experience any loss or lack of access to our cash or cash equivale nts.

During the years ended December 31, 2024 and 2023, 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.

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.

As of December 31, 2023 , all our commercial properties, except 300 NP which has no debt, had fixed-rate mortgage notes payable in the aggregate principal amount of $73.7 million , collater alized by a total of 11 commercial properties with loan terms at issuance ranging from 7 to 10 years.

As of December 31, 2024, all our commercial properties, except 300 NP which has no debt, had fixed-rate mortgage notes payable in the aggregate principal amount of $76.8 million, collateralized by a total of 11 commercial properties with loan terms at issuance ranging from 5 to 10 years.

The weighted-average interest rate on these mortgage notes payable as of December 31, 2024 was approximately 5.24%, and our debt to estimated market value for our commercial properties was approximately 67.2%.

During the next 12 months four of our commercial property loans, totaling approximately $26.1 million, will mature, with an estimated combined loan to value of approximately 59% as of December 31, 2023.

As noted above, during the next 12 months our four commercial property loans, Dakota Center, Research Parkway, Union Town Center, Genesis Plaza and Shea Center II, have mortgage loans with maturity dates, totaling approximately $30.1 million.

As of December 31, 2024, the Company had fixed-rate mortgage notes payable related to model homes in the aggregate principal amount of $26.1 million, excluding loans eliminated through consolidation, collateralized by a total of 78 Model Homes.

These loans generally have a term at issuance of three to five years.

As of December 31, 2023 , the average loan balance per home outstanding and the weighted-average interest rate on these mortgage loans are ap proximately $322,368 and 5.81%, respectively.

As of December 31, 2024, the average loan balance per home outstanding and the weighted-average interest rate on these mortgage loans are approximately $334,113 and 6.78%, respectively.

Our debt to estimated market value on all our Model Home Properties is approximately 62.0%, excluding any loans eliminated through consolidation.

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As of December 31, 2023, we had issued two promissory notes to our majority owned subsidiaries, Dubose Model Home Investors 202 LP and Dubose Model Home Investors 204 LP, for the refinancing of two Model Home Properties in Texas and Wisconsin, for approximately $0.5 million with interest rates ranging from 3.0% to 5.55% per annum and maturity dates between August 2024 and November 2025.

These notes payable and notes receivable, including interest expense and interest income related to these promissory notes, are eliminated through consolidation on our financial statements.

These notes payable and notes receivable, including interest expense and interest income related to these promissory notes, are eliminated through consolidation on our financial statements and were paid in full as of December 31, 2024.

Cash Flows for the years ended December 31, 2024 and December 31, 2023

Operating Activities:

Net cash provided by operating activities for the years ended December 31, 2023 and 2022 increased by $0.6 million to approximately $1.5 million from $0.9 million.

The change in net cash provided in operating activities is mainly due to changes in net income, including operating activities of the SPAC, which fluctuates based on timing of receipt and payment, as well as an increase in non-cash addbacks such as straight-line rent.

Consolidated operating expenses related to the SPAC totaled approximately $1.45 million and $1.50 million for the years ended December 31, 2023 and 2022, respectively.

There will be no operating expense related to the SPAC in future periods, since the deconsolidation in September 2023.

Net cash used / provided by operating activities for the years ended December 31, 2024 and 2023 decreased by $2.2 million to approximately $0.7 million used from $1.4 million provided by.

The change in net cash used in operating activities is mainly due to changes in net income, which fluctuates due to new leases, leasing renewals, tenant move outs and model home sales and acquisitions, as well as changes in non-cash addbacks or subtractions such as straight-line rent.

This included additional consulting fees, higher proxy solicitation fees and legal fees, which increased by an aggregate of approximately $0.6 million in 2024 as compared to 2023.

This was slightly offset by the approximately $0.2 million reduction of D&O insurance related to the SPAC in 2023 that was not consolidated during 2024.

Investing Activities:

Net cash from investing activities for the year ended December 31, 2023 was approximately $120.3 million compared to cash used in investing activities of approximately $126.4 million during the same period in 2022.

The change from each period was primarily related to the gross cash distributed from the Trust Account for Murphy Canyon totaling approximately $137 million.

Additionally, proceeds from sale of real estate, net, were down approximately $15 million in 2023, as compared to 2022, and proceeds used for real estate acquisition and building improvements were up approximately $10.5 million.

Net cash from investing activities for the year ended December 31, 2024 was approximately $12.9 million compared to cash provided by investing activities of approximately $120.6 million during the same period in 2023.

The change from each period was primarily related to the gross cash withdrawal of approximately $114.1 million during the first quarter of 2023 for SPAC redemptions.

There were no similar transactions during the year ended December 31, 2024.

Proceeds from the sale of real estate assets total approximately $24.8 million, which is up from the same period in 2023, net of selling costs, while cash used in real estate acquisition and capital improvement totaled approximately $12.0 million, for the year ended December 31, 2024, which is down from the same period in 2023.

We currently project that we could spend up to $1.7 million (some of which is held in deposits reserve accounts by our lenders) on capital improvements, tenant improvements and leasing costs for properties within our portfolio during the rest of the year.

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Net cash used in financing activities during the year ended December 31, 2024 was $10.6 million compared to $132.1 million provided by financing activities for the same period in 2023 and was primarily due to the following activities for the year ended December 31, 2024:

Payments on redemptions of approximately $137.2 million for Murphy Canyon common stock during the year ended December 31, 2023.

The payment of Series A Common Stock and Series D Preferred Stock dividends totaling approximately $1.2 million and $2.1 million, respectively during the year ended December 31, 2023.

Net repayment of mortgage notes payable and notes payable totaling approximately $10.1 million during the year ended December 31, 2023.

Distributions to noncontrolling interest of approximately $1.7 million.

The repurchase of Series D Preferred Stock totaling approximately $0.4 million.

These decreases to cash used in financing activities were offset by proceeds from mortgage notes payable, net of issuance costs of approximately $20.8 million.

Off-Balance Sheet Arrange ments

Proceeds from mortgage notes payable, net of issuance costs totaled approximately $22.3 million.

Proceeds from the issuance of Series D Preferred Stock, net of offering costs, totaled approximately $1.2 million.

Repayment of mortgage notes payable totaled approximately $27.9 million during the year ended December 31, 2024.

Distributions to noncontrolling interest of approximately $3.4 million during the year ended December 31, 2024.

Dividends paid to Series D Preferred Stockholders of approximately $2.2 million during the year ended December 31, 2024.

Cash used to repurchase our Series A Common Stock and Series D Preferred Stock totaled approximately $0.2 million.

Off-Balance Sheet Arrangements

On July 12, 2021, the Company entered into a securities purchase agreement with a single U.S.

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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.

Should warrant holders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/10 of a common share at expiration, rounded down to the nearest number of whole shares.

Series A Warrants:

If all the potential Series A Warrants outstanding at December 31, 2024, were exercised at the price of $7.00 per share, gross proceeds to us would be approximately $101.2 million and we would as a result issue an additional 14,450,069 shares of common stock.

Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index (typically subject to ceilings), or increases in the clients’ sales volumes.

The prevailing inflationary environment has affected U.S.

consumers and the repercussions may persist.

As evidenced by the Consumer Price Index for All Urban Consumers (CPI), a gauge employed by the U.S.

Bureau of Labor Statistics, there was a 2.9% (not seasonally adjusted) increase for the 12-month period ending December 31, 2024.

The CPI serves as a metric for capturing the average fluctuations in prices paid by urban consumers across a diverse array of consumer goods and services.

The macroeconomic landscape, including ongoing conflicts around the world, introduces an additional layer of complexity to the inflationary dynamics.

These geopolitical disruptions have the potential to intensify inflationary pressures, contributing to the volatility witnessed in the broader economic context.

As consumers navigate this challenging landscape, the potential for continued impact on their purchasing power remains a significant consideration.

Leases generally provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, or increases in clients’ sales volumes.

We expect that inflation will cause these lease provisions to result in rent increases over time.

During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

However, our use of net lease agreements tends to reduce our exposure to rising property expenses due to inflation because the client is responsible for property expenses.

Inflation and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue.

During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation and other costs.

Moreover, our strategic focus on the use of net lease agreements reduces our exposure to rising property expenses due to inflation because the client is responsible for property expenses.

Even though the utilization of net leases reduces our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our clients if increases in their operating expenses exceed increases in revenue, which may adversely affect our clients' ability to pay rent.

Additionally, inflationary periods may cause us to experience increased costs of financing, make it difficult to refinance debt at attractive rates or at all, and may adversely affect the properties we can acquire if the cost of financing an acquisition is in excess of our anticipated earnings from such property, thereby limiting the properties that can be acquired.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis