Item 7. Management’s Discussion and Analysis
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.
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 central United States. As of December 31, 2025, including properties held for sale, the Company owned or had an equity interest in:
•
Eight office properties and one industrial property (“Office/Industrial Properties”) which total approximately 758,175 rentable square feet.
•
One retail shopping center (“Retail Properties”) which totals approximately 10,500 rentable square feet, and
•
80 model homes owned totaling approximately 237,981 square feet, by four affiliated limited partnerships and one corporation (“Model Home Properties”).
Previously, the Company reported a multi-tenant portfolio for the year ended December 31, 2024 of:
• Eight office buildings and one industrial building (“Office/Industrial Properties”) which total approximately 758,175 rentable square feet,
• Three retail shopping centers (“Retail Properties”) which total approximately 65,242 rentable square feet, and
• 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 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.
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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 individually 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 sale-lease transaction. Our ownership of the underlying property provides a further means to avoiding significant credit losses.
Significant Transactions in 2025 and 2024
Acquisitions during the year ended December 31, 2025:
•
We acquired 22 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2025. The purchase price for these properties was approximately $9.4 million. The purchase price consisted of cash payments of approximately $2.8 million and mortgage notes of approximately $6.6 million.
Acquisitions during the year ended December 31, 2024:
•
We acquired 19 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2024. The purchase price for the properties was approximately $9.7 million. The purchase price consisted of cash payments of approximately $3.0 million and mortgage notes of approximately $6.7 million.
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.
Dispositions during the year ended December 31, 2025:
During year ended December 31, 2025, we disposed of the following properties:
•
20 model homes for approximately $9.8 million, net of sales costs, and the Company recognized a gain of approximately $1.0 million.
•
On February 6, 2025, the Company sold two commercial properties, Union Town Center and Research Parkway, to a single buyer for approximately $15.9 million, net of selling costs, and recognized a net gain of approximately $4.5 million net of closing costs.
Dispositions during the year ended December 31, 2024:
During year ended December 31, 2024, we disposed of the following properties:
•
51 model homes for approximately $24.8 million and the Company recognized a gain of approximately $3.4 million.
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ECONOMIC ENVIRONMENT
We believe that the US macroeconomic environment in 2026 is marked by cautious optimism in the face of generally uncertain headwinds: as Morgan Stanley notes in its market outlook for 2026, an expectation for sheepish growth in Q1 of 2026 dovetails into forecasts of moderate improvement as monetary policy moves to a more neutral position. Similar observations have been noted by other investor outlooks; for example Colliers Securities notes that while signs of economic distress have been present, the scale of these signals was beneath expectations and the reaction to them in the lending market has been to “kick the can," suggesting that the market has a tolerance for near term uncertainty on the belief that headwinds will lessen further down the road.
The general optimism for a resilient marketplace, coupled with the expectation for decreases in interest rates from the Federal Reserve, could position REITs more favorably in 2026 relative to recent periods as market conditions show signs of trending towards equilibrium. REIT-related experts like Nareit cite that a shift towards equilibrium would position REITs to improve their value as two key gaps close: the gap between public and private real estate valuations, and the gap between REITs and broader tech-focused equity. Below, two graphics highlight the ongoing gaps and the historical tendency for the narrowing of such gaps to favorably affect REIT valuations:
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In the corresponding bar graph, REITs have dealt with a long-standing gap of 100+ basis points between public and private valuations. The closure of such a gap has historically corresponded with an increase in real-estate transactions as private appraisal valuations fall or the cost of purchasing continues to decrease as interest rates fall. Conversely speaking, the historical trend line of comparative earnings valuations illustrates that while current valuations favor broader-equity, REITs’ earnings multiples suggest an opportunity for relative outperformance as this gap narrows. While the timing of such a normalization remains uncertain, the current macroeconomic forecasts of moderate interest rate cuts and market resilience would support the gradual normalization of relative valuations over time. The tension within this current valuation gap seems to track with the broader real estate market sentiment in general; CBRE reports that across all sectors, capitalization rates have leveled off at a peak value over the last two fiscal quarters of 2025, a trend that would support the eventual increase in property valuations.
CREDIT MARKET ENVIRONMENT
For December 2025, the Federal Funds Rate was 3.72%, a decrease of 116 basis points from 2024, which ended the year at a rate of 4.88%. As of January 2026, the current market rate for fixed-rate mortgages ranged from 5.52% to 6.25%, while commercial real estate rates hovered between 5.17% to 6.50%, depending on the building type. While these rates reflect a decrease in the cost of borrowing for buyers and certain market observers believe there is a reasonable expectation for rate cuts in 2026, the credit market for 2026 may prove immobile due to long term expectations about the market, as noted by JP Morgan in its 2026 projections: “While markets are pricing short-term interest rates to come down by 0.5-0.75% over the coming year, mortgage rates and longer-term rates might stay elevated as fiscal concerns weigh on the long end of the yield curve. This could be an environment that keeps construction restricted and rewards patient capital investing in supply-constrained markets."
The trepidation about changes to long term credit market rates aligns with what can be observed in the Federal Reserve’s policy outlook for 2026 and beyond; according to reporting published by the Congressional Research Service, the Federal Reserve has positioned itself to pursue a “neutral policy” in relation to its targets for the Federal Funds Rate, and its internal modeling suggests that current rates would fit the bill of neutrality, despite the relative ambiguity of that modeling. Though past behavior is not an indicator of future decisions, forecasting modest movements from the Federal Reserve would align with its historical response to competing concerns about inflation and unemployment, as seen below:
As modestly decreased interest rates would be advantageous for our purposes, it is worth noting that decreased rates would not necessarily translate to loan refinancing or new mortgages, as these rates vary across properties and depend on a variety of performance indicators including but not limited to cash flows, occupancy rates, and lender credit.
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SECTOR SPECIFIC OUTLOOKS
Colliers Securities notes the following for the primary real-estate sectors in their 2026 outlook for the US:
●
Multifamily and Industrial/Logistics (IL): improved development pipelines have allowed both sectors to grow, which could in theory create the conditions for further improvement in fundamental metrics. The multifamily sector specifically shows signs of increased opportunity while reduced supply constraints have the potential to increase transactions within the IL sector.
●
Office : high vacancy rates have muddied signals of recovery and increased demand across multiple regional markets, making properties expensive to both acquire and maintain occupancy.
As it pertains to the wider housing market, the general indicators for 2026 market expectations largely reflect the same uncertainty felt across the broader US economy. According to the National Association of Homebuilders' housing market sentiments rose in Q4 of 2025 and fell slightly in January of 2026, as sales conditions, short term (6 month) sales expectations, and prospective buyer traffic collectively fell. As of January, homebuilder sentiment was at a value of 37 out of 100, which reflects an overall negative outlook about the expectations for and demand of single-family home sales over the next six months.
Though the January report reflects a broadly pessimistic near-term outlook, the current trend line for 2026 falls within the range of index scores observed over the past 24 months, with homebuilder sentiment charting as high as 44 as of January 2024 on the index and as low as 32 as of June 2025. In the context of our business operations, specifically our model homes segment, overall builder sentiment offers an understanding of the broader macroeconomic trends for the housing market but is nonspecific to model homes, thus limiting its utility to general forecasting about broader market forces.
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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 or other assets.
In addition, management evaluates the results of the operations of our portfolio and individual properties with a primary focus on increasing and enhancing the value, quality and quantity of properties in our real estate holdings. Management focuses its efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals and rental rates. Properties are regularly evaluated for potential added value appreciation and cash flow and, if lacking such potential, are sold with the equity reinvested in new acquisitions or otherwise allocated in a manner we believe is accretive to our stockholders. Our ability to increase assets under management is affected by our ability to raise borrowings and/or capital, coupled with our ability to identify appropriate investments.
Our results of operations for the years ended December 31, 2025 and 2024 may not be indicative of those expected in future periods. During 2025, stagnations in previously rising commercial real estate prices, slow-to-decrease interest rates, and compressing capitalization rates across the US have made it challenging to acquire properties during 2025 that fit our portfolio needs. As a result, we did not find any suitable commercial properties to acquire during 2025, but we were able to acquire 22 Model Home Properties. Management will continue to evaluate potential acquisitions in an effort to increase our portfolio of commercial real estate and model homes.
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.
Impairment of Real Estate Assets . 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. If the carrying amount exceeds the undiscounted cash flows, we calculate an impairment loss by comparing the carrying amount to estimated fair value, using discounted cash flow models or third-party appraisals. 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, including but not limited to, the terminal capitalization rate. 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.
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Real Estate Held for Sale. We generally reclassify assets to "held for sale" when the disposition has been approved, it is available for immediate sale in its present condition, we are actively seeking a buyer, and the disposition is considered probable within one year. Additionally, real estate sold during the current period is classified as “real estate assets 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 are classified as “mortgage notes payable related to properties 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. Properties considered held for sale are recorded at the lesser of the carrying value or fair value less costs to sell. As of December 31, 2025, only one commercial property, Dakota Center, met the criteria to be classified as "held for sale," and five model homes were classified as "held for sale" but are not considered discontinued operations or a strategic shift in our operations.
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: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
•
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
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.
When determining the fair value of real estate assets, goodwill and other liabilities the Company refers to the guidance in ASC 820. The term “Fair Value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (ASC 820-10-20). In particular, ASC 820 prescribes that the measurement of the Fair Value of an asset or liability should be based on assumptions that market participants would use when pricing the asset or liability. Accordingly, the Company’s determination of the Fair Value measurements detailed above is based on the price that would be received to sell an asset or transfer a liability at the measurement date, assuming a transaction takes place at that date (i.e., an exit price).
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As of December 31, 2025 and December 31, 2024, 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 zero, respectively, with a cost basis of approximately zero and zero, 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 $3,900 as of December 31, 2025, 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. There were no financial liabilities measured at fair value as of December 31, 2025 and December 31, 2024 .
The following table presents as of December 31, 2025 the Company’s assets subject to measurement at fair value on a nonrecurring basis (in thousands):
Fair Value Measurements as of December 31, 2025
Level 1
Level 2
Level 3
Total
Impairment Loss
Assets:
Goodwill for NTR Property Management
$
—
$
—
$
194,000
$
194,000
$
72,000
Certain Real Estate assets
—
—
24,499,935
24,499,935
6,371,437
Total Assets
$
—
$
—
$
24,693,935
$
24,693,935
$
6,443,437
The following table presents as of December 31, 2024 the Company’s assets subject to measurement at fair value on a nonrecurring basis (in thousands):
Fair Value Measurements as of December 31, 2024
Level 1
Level 2
Level 3
Total
Impairment Loss
Assets:
Goodwill for NTR Property Management
$
—
$
—
$
266,000
$
266,000
$
185,000
Certain Real Estate assets
—
—
18,065,871
18,065,871
1,784,311
Total Assets
$
—
$
—
$
18,331,871
$
18,331,871
$
1,969,311
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RESULTS FROM OPERATIONS FOR THE YEARS ENDED December 31, 2025 AND 2024
Our results from operations for 2025 and 2024 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 $16.8 million for the year ended December 31, 2025 compared to approximately $18.9 million for the same period in 2024, a decrease of approximately $2.1 million or 11.2%. As of December 31, 2025, we had approximately $108.6 million in net real estate assets including 80 model homes, compared to approximately $127.6 million in net real estate assets including 78 model homes on December 31, 2024. The average number of model homes held during the years ended December 31, 2025 and 2024 was 79 and 94, respectively. The change in revenue is directly related to the decrease in commercial real estate rental income during the current period, from the sale of our two commercial properties on February 6, 2025. Below is additional revenue and asset information for real estate segments as of December 31, 2025 and December 31, 2024. Looking forward to 2026, it is worth noting that we expect the sale of Dakota Center and the loss of Shea Center II to result in a decrease of revenue of approximately $4.0 million.
% of Gross Revenue for the year ended
Segment
12/31/2025
12/31/2024
Office/Industrial
72.8
%
65.2
%
Model Home
23.5
%
23.4
%
Retail
3.2
%
11.2
%
Other Non-Segment & Consolidating Items
0.5
%
0.2
%
% of Total Real Estate Assets as of
Segment
12/31/2025
12/31/2024
Office/Industrial
62.1
%
58.3
%
Model Home
33.8
%
29.3
%
Retail
4.1
%
12.3
%
Rental Operating Costs . Rental operating costs were approximately $6.2 million for the year ended December 31, 2025 compared to approximately $6.3 million for the same period in 2024, a decrease of approximately $0.1 million or 1.6%. Rental operating costs as a percentage of total revenue were 36.6% and 33.1% for the years ended December 31, 2025 and 2024, respectively, as office property expenses continue to increase, specifically insurance costs. As of December 31, 2025 our model home assets made up 33.8% of our total real estate assets, which is up from 29.3% as of December 31, 2024, and our gross revenue from model home assets represented approximately 23.5%of our total revenue. This percentage is expected to increase in 2026 as the percentage of our model home real estate assets has increased, with the sale of Dakota Center in 2026 and the status of Shea Center II; however, if we purchase additional properties during 2026, our rental operating costs could increase. As for our commercial properties, we expect operating costs to decrease by $2.5 million as a result of the Dakota Center sale and the loss of Shea Center II.
General and Administrative . General and administrative (“G&A”) expenses were approximately $5.7 million for the year ended December 31, 2025, compared to approximately $7.5 million for the same period in 2024, representing a decrease of approximately $1.8 million or 24.2%. As a percentage of total revenue, our general and administrative costs were approximately 33.9% and 39.8% for the years ended December 31, 2025 and 2024, respectively. G&A expenses comparatively decreased in 2025, largely due to the one-time nature of the 2024 annual meeting and settlement with Zuma Capital and certain individuals and entities affiliated or associated with Zuma Capital Management, LLC ("Zuma Capital"). The comparative decline was also due to additional consulting fees, higher proxy solicitation fees, and legal fees in 2024, all of which decreased by an aggregate of approximately $0.6 million in 2025 as compared to 2024. 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.
Depreciation and Amortization . Depreciation and amortization expenses were approximately $4.9 million for the year ended December 31, 2025, compared to approximately $5.5 million for the same period in 2024. The decrease is directly related to the sale of our retail properties UTC and Research Parkway during February 2025. Looking ahead to 2026, we expect these costs to decrease as both Shea Center II and Dakota Center made up approximately $1.0 million in depreciation and amortization costs.
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Asset Impairments . We review the carrying value of goodwill and each of our real estate properties annually to determine if circumstances indicate an impairment in the carrying value of these investments exists. During the year ended December 31, 2025, we recognized a non-cash impairment charge of approximately $6.4 million on our real estate assets. Of the $6.4 million impairment for the year, approximately$6.0 million was related to our commercial properties Shea Cener II and Dakota Center, approximately $0.3 million was related to model homes, and approximately $0.1 million was related to goodwill impairment. The impairment on Shea Center II was primarily related to suboptimal occupancy levels and the near term conditions of the Denver market conditions, while the new impairment charges for the model homes reflect the estimated and actual sales prices for these specific model homes. This was the result of an abnormally short hold period, less than two years. We do not believe these losses are indicative of our overall model home portfolio. As noted above in the Overview section, during the year ended December 31, 2025, we sold 20 model homes for approximately $9.8 million and the Company recognized a gain of approximately $1.0 million.
Previously for the year ended December 31, 2024, we recognized a non-cash impairment charge of approximately $2.0 million related to goodwill and model homes. Of the $2.0 million impairment for the year, approximately $1.4 million was related to our One Park Center property, approximately $0.4 million was related to eight model homes, and approximately $0.2 million was related to goodwill impairment. 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. As of January 14, 2026, Dakota Center had sold for a value of $5,125,000.
Interest Expense-mortgage notes. Interest expense, including amortization of deferred finance charges, was approximately $6.1 million for the year ended December 31, 2025. This value is unchanged from the $6.1 million in interest expense incurred for December 31, 2024. As of December 31, 2025 we carried total debt of $92.1 million which reflects a decrease of 9.8% from the year ended December 31, 2024. Simultaneously, the weighted average of our interest expenses increased from 5.63% as of December 31, 2024 to 6.16% for the year ended December 31, 2025. We expect these costs to decrease for 2026, as approximately $1.3 million of our current interest expenses were driven by Shea Center II and Dakota Center.
Gain on Sale of Real Estate Assets. For the year ended December 31, 2025, 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 2025 and 2024 above for further detail.
Income Tax Expense / Benefit. For the year ended December 31, 2024, the Company recorded a benefit of approximately $61,000 related to estimated refunds from federal and state taxes for capital gains from the sale of model homes held by the taxable REIT subsidiary. For the year ended December 31, 2025, the Company recorded an expense of approximately $23,000 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. Income allocated to non-controlling interests for the years ended December 31, 2025 and 2024 totaled approximately $0.7 million, and $2.5 million, respectively, and was directly impacted by the sale of 6 and 18 model homes held by our Model Home Partnerships during the years ended December 31, 2025 and 2024, respectively.
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, 2025:
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State
No. of Properties
Aggregate Square Feet
Approximate % of Square Feet
Current Base Annual Rent
Approximate % of Aggregate Annual Rent
California
1
57,807
7.5
%
$
1,636,781
15.3
%
Colorado
3
269,502
35.1
%
4,424,654
41.3
%
Maryland
1
31,752
4.1
%
739,050
6.9
%
North Dakota
4
399,114
51.9
%
3,553,243
33.2
%
Texas
1
10,500
1.4
%
349,546
3.3
%
Total
10
768,675
100.0
%
$
10,703,274
100.0
%
The following table shows a list of our Model Home Properties by geographic region as of December 31, 2025:
State
No. of Properties
Aggregate Square Feet
Approximate % of Square Feet
Current Base Annual Rent
Approximate % of Aggregate Annual Rent
Alabama
10
23,835
10.0
%
$
347,064
10.0
%
Arizona
1
3,474
1.5
%
74,280
2.1
%
Tennessee
2
5,534
2.3
%
89,304
2.6
%
Texas
67
205,138
86.2
%
2,955,864
85.3
%
Total
80
237,981
100.0
%
$
3,466,512
100.0
%
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 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, 2025 was approximately $7.4 million. Our future capital needs include paying down existing borrowings, maintaining our existing properties, funding tenant improvements, paying lease commissions (to the extent they are not covered by lender-held reserve deposits), and the payment of dividends to our stockholders. We also are actively seeking model home investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders. 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 2026, total approximately $30.0 million, of which $4.5 million is related to model home properties and approximately $16.4 million is related to our Shea Center II property in Colorado. 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 has done in the past. Additional principal payments will be made with cash flows from ongoing operations. The non-recourse loan for Shea Center matured on January 5, 2026. On January 14, 2026 the Dakota Center property sold to an unrelated third-party for approximately $5.1 million. The lender received approximately $4.3 million from the sale of the property, which was applied to settle the net loan balance of approximately $8.9 million. The Company was not responsible for the remaining balance on this non-recourse loan. No other commercial property loans mature during 2026.
On January 21, 2026, the Company and NetREIT SC II, LLC, a subsidiary of the Company (the “Borrower” or "Shea Center"), received a notice (the “Default Notice”) from Wells Fargo Bank, National Association (the “Lender”) alleging that the Borrower’s failure to repay in full by January 5, 2026 the indebtedness owed under that certain promissory note dated as of December 24, 2015 issued to The Bancorp Bank (the “Original Lender”) in the original principal amount of $17,727,500 (the “Note”), the related loan agreement, dated as of December 24, 2015 by and between Borrower and the Original Lender (the “Loan Agreement”) and other related agreements (together with the Note and the Loan Agreement, the “Loan Documents”), constituted an event of default under the Loan Documents and alleging further that the Lender has the right to foreclose or partially foreclose certain real and personal property that the Borrower had pledged as security for the Note located in Douglas County, Colorado, known as the “Shea Center II” (the “Property”).
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On February 13, 2026, in connection with an ex parte motion brought by the Lender, the Borrower entered into a stipulation with the Lender to appoint Trigild IVL (the “Receiver”) as receiver over the Property and for the entry of an Order for Appointment of Receiver (the “Order”). Pursuant to the Order, the Borrower, and certain defendant parties, which include the Company (the “Borrower Parties”) are enjoined and restrained from collecting any rents or fees from or incident to the Property and from interfering with the Property. The Borrower Parties agreed to turn over to the Receiver all sums in existence as of the date of entry of the Order that are related or pertain to, or are derived from, the Property. In addition, the Receiver shall have possession of the Property and shall have full power and authority to operate, manage, and preserve the Property.
In the case of our non-recourse loan for Shea Center II, our obligation will be settled by surrendering the property into receivership in accordance with our agreements with the lender. As a result of both the receivership on Shea Center and the sale of Dakota Center, we expect a net increase to our cash balances in 2026, as both properties placed substantial pressure on their respective segments, with negative or break even cash flows during the year ended December 31, 2025.
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 was an attractive use of capital. 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. 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 expired 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. 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 expired in December 2025. During the year ended December 31, 2025, we repurchased 16,080 shares of our Series A Common Stock, with an average price of $4.79 per share, including a commission of $0.025 per share, for a total cost of $77,092 for the Series A Common Stock. This does not include the Tender Offer shares repurchased during April 2025 as noted below. During the year ended December 31, 2025, the Company repurchased 23,346 shares of our Series D Preferred Stock at an average price of approximately $14.76 per share, including a commission of $0.035 per share, for a total cost of $344,503 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.
On April 8, 2025, we commenced the Tender Offer, a fixed price self-tender offer to purchase for cash all odd lots plus up to 200,000 shares of the Company’s Series A common stock, par value $0.01 per share, properly tendered and not properly withdrawn prior to the expiration date, subject to the Company’s ability to increase the number of shares accepted for payment in the Tender Offer by up to 2% of the Company’s outstanding common stock (resulting in an increase of up to approximately 28,308 shares) without amending or extending the Tender Offer in accordance with rules promulgated by the SEC, at $6.80 per share, net to the seller in cash, less any applicable withholding taxes and without interest. The Tender Offer expired at 11:59 pm, New York City time, on May 5, 2025. Based on the final count by the depositary for the Tender Offer, 214,412 shares of Series A common stock were validly and successfully tendered and not properly withdrawn, including tenders of shares for which the tender was defective but for which the Company waived such defects. Pursuant to the terms of the Tender Offer, the Company accepted for purchase 214,412 shares of Series A common stock, including 1,209 odd lot shares. Total cash required to complete the Tender Offer was approximately $1,458,000, excluding fees and expenses related to the Tender Offer. We believe that the Tender Offer provided an efficient mechanism to provide our stockholders who desired immediate liquidity with the opportunity to tender shares at a favorable price relative to the current market price and without incurring broker’s fees associated with most secondary market sales, while also providing a benefit to those stockholders who did not participate, as such stockholders automatically increased their relative percentage ownership interest in the Company and our future operations, including any liquidity events that we may have in the future. Another purpose of the Tender Offer was to reduce the number of our issued and outstanding shares and to reduce or eliminate all of our odd lots. Overall, we believe that the Tender Offer was a prudent use of our financial resources given our business profile, capital structure, assets and liabilities.
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, reduce certain discretionary spending or even sell properties, 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 2026 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 or suspend the rate of dividends to our stockholders.
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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.
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, 2025 and 2024. As of January 28, 2026, the Board of Directors has suspended the Company’s monthly dividend on its Series D Preferred Stock commencing with the January 2026 monthly dividend that would have been paid on February 15, 2026. In accordance with the terms of the Series D Preferred Stock, the unpaid monthly dividends will continue to accrue at $0.19531 per share each month. No interest, or sum of money in lieu of interest, is payable in respect of any dividend payments on the Series D Preferred Stock that are in arrears. The Board has not indicated when it will resume approving dividends on our Series A Common Stock. The Board and the Company intend to reassess, on a quarterly basis, when accrued dividends on the Series D Preferred Stock may be paid and when the monthly dividend payments can be reinstated.
Quarter Ended
2025
2024
Distributions Declared
Distributions Declared
March 31
$
—
$
—
June 30
—
—
September 30
—
—
December 31
—
—
Total
$
—
$
—
Month
2025
2024
Distributions Declared
Distributions Declared
January
$
0.19531
$
0.19531
February
0.19531
0.19531
March
0.19531
0.19531
April
0.19531
0.19531
May
0.19531
0.19531
June
0.19531
0.19531
July
0.19531
0.19531
August
0.19531
0.19531
September
0.19531
0.19531
October
0.19531
0.19531
November
0.19531
0.19531
December
0.19531
0.19531
Total
$
2.34372
$
2.34372
Cash, Cash Equivalents and Restricted Cash
At December 31, 2025 and December 31, 2024, we had approximately $7.4 million and $8.0 million in cash equivalents, respectively, including $5.7 million and $5.0 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 the years ended December 31, 2025 and 2024, we did not experience any loss or lack of access to our cash or cash equivalents. Approximately $1.9 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, and general corporate purposes.
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Secured Debt
As of December 31, 2025, all our commercial properties, except 300 NP which has no debt, had fixed-rate mortgage notes payable in the aggregate principal amount of $67.3 million, collateralized by a total of nine 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, 2025 was approximately 5.78%, and our debt to estimated market value for our commercial properties was approximately 72.6%. As noted above, our only upcoming maturity date for 2026 is the Shea Center II mortgage loan, which totals a principal balance of approximately $16.4 million. Subsequent to the year ended December 31, 2025, the Company received notice that the Company's failure to repay in full by January 5, 2026 the indebtedness related to the loan agreement governing Shea Center II had triggered a default event. The Company has received notification that the Shea Center II property governed by this agreement will be moved into receivership, which will fulfill its obligation for this non-recourse loan. In the year ended December 31, 2024, the non-recourse loan on the Dakota Center property matured on July 6, 2024. During December 2024, the lender agreed to the broker the Company would use to sell the property to settle the non-recourse debt. As of December 31, 2025, the property was included in the real estate assets held for sale, net on the consolidated balance sheet.
As of December 31, 2025, the Company had fixed-rate mortgage notes payable related to model homes in the aggregate principal amount of $25.6 million, collateralized by a total of 80 Model Homes. These loans generally have a term at issuance of three to five years. As of December 31, 2025, the average loan balance per home outstanding and the weighted-average interest rate on these mortgage loans are approximately $320,056 and 7.15%, respectively. Our debt to estimated market value on all our Model Home Properties is approximately 55.6%. We have been able to refinance maturing mortgages to extend maturity dates and we have not experienced any notable difficulties financing our acquisitions. The Company anticipates that any new mortgages used to acquire commercial properties or model homes in the near future will be at rates higher than our currently weighted average interest rate.
Cash Flows for the years ended December 31, 2025 and December 31, 2024
Operating Activities: Net cash provided / used by operating activities for the years ended December 31, 2025 and 2024 increased by $1.1 million to approximately $417,870 provided from $0.7 million used. 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. With the sale of Dakota Center and the pending loss of our Shea Center property in Q1 2026, we expect operating cash flows to improve.
Investing Activities: Net cash from investing activities for the year ended December 31, 2025 was approximately $13.5 million compared to cash provided by investing activities of approximately $12.9 million during the same period in 2024. Proceeds from the sale of real estate assets total approximately $25.6 million, which is up from the same period in 2024, net of selling costs, while cash used in real estate acquisition and capital improvement totaled approximately $12.1 million, for the year ended December 31, 2025, which is similar the same period in 2024.
On July 14, 2025, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Purchaser”) for the purpose of raising approximately $2.05 million in gross proceeds for the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell in a registered direct offering (the “Offering”), (i) 140,000 shares (the “Public Shares”) of its Series A Common Stock and (ii) pre-funded warrants to purchase up to 30,830 shares (the “Pre-Funded Warrant Shares”) of Series A Common Stock (the “Pre-Funded Warrants”). Each Public Share and accompanying Pre-Funded Warrant were sold together at a combined offering price of $12.00. The Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $0.0001 and were exercised on July 14, 2025 in full.
The closing of the sales of the Securities pursuant to the Purchase Agreement occurred on July 15, 2025. The net proceeds to the Company after deducting the Placement Agent’s fees and the Company’s offering expenses were approximately $1.7 million. The Company has used and intends to use the net proceeds from the offering for working capital and for other general corporate purposes including to potentially acquire additional properties.
In addition, in connection with the Purchase Agreement, the Company and the Purchaser entered into an Amendment to Series A Common Stock Purchase Warrants (the “Amendment”). The Amendment amends certain warrants to purchase 200,000 shares of Series A Common Stock purchased by the Purchaser on July 14, 2021 to (i) reduce the exercise price to $12.00 per share from $55 per share and (ii) extend the termination date to July 16, 2030 from July 16, 2026. Pursuant to the Stock Purchase Agreement, the Company filed a resale registration statement to register the shares of Series A Common Stock underlying such warrants, which registration statement went effective on August 22, 2025.
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We currently project that we could spend up to $1.9 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. Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to the properties. We may spend more on capital expenditures in the future due to rising construction costs. Tenant improvements and leasing costs may also fluctuate in any given year depending upon factors such as the property, the term of the lease, the type of lease, the involvement of external leasing agents and overall market conditions.
Financing Activities: Net cash used in financing activities during the year ended December 31, 2025 was $14.5 million compared to $10.6 million provided by financing activities for the same period in 2024 and was primarily due to the following activities for the year ended December 31, 2025:
•
Proceeds from mortgage notes payable, net of issuance costs totaled approximately $18.9 million, a decrease of approximately $3.9 million for the same period in 2024.
•
Proceeds from the issuance of Series A Common Stock, net of offering costs, totaled approximately $1.7 million. For the year ended December 31, 2024, proceeds from the issuance of common stock totaled an approximate value of $1.2 million.
•
Repayment of mortgage notes payable totaled approximately $28.9 million during the year ended December 31, 2025, an increase of nearly $1.0 million from the same period in 2024.
•
Distributions to noncontrolling interest of approximately $1.3 million during the year ended December 31, 2025, a decrease of approximately $2.4 million from the year ended December 31, 2024.
•
Cash used to repurchase our Series A Common Stock and Series D Preferred Stock totaled approximately $1.9 million. For the same period in 2024, the Company used $0.2 million to repurchase both Series A Common Stock and Series D Preferred Stock.
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 100,000 shares of its Series A Common Stock, Common Stock Warrants to purchase up to 200,000 shares of Series A Common Stock and Pre-Funded Warrants to purchase up to 100,000 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 $50.00, and each share of Common Stock and accompanying Pre-Funded Warrant were sold together at a combined offering price of $49.90. The Pre-Funded Warrants were exercised in full during August 2021 at a nominal exercise price of $0.10 per share. The Common Stock Warrants had an exercise price of $55.00 per share, exercisable upon issuance and will expire five years from the date of issuance. In July 2025 the exercise price was adjusted to $12.00 per share and the term of the warrants extended to July 16, 2030.
In connection with the Series A Common Stock offering in July 2021, we agreed to issue the Placement Agent Warrants to purchase up to 8,000 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 $62.50 and will expire five years from the date of issuance.
Common Stock Warrants: If all the potential Common Stock Warrants outstanding at December 31, 2025, were exercised at the price of $12.00 per share, gross proceeds to us would be approximately $2.4 million and we would as a result issue an additional 200,000 shares of common stock.
Placement Agent Warrants: If all the potential Placement Agent Warrants outstanding at December 31, 2025, were exercised at the price of $62.50 per share, gross proceeds to us would be approximately $0.5 million and we would as a result issue an additional 8,000 shares of common stock.
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January 14, 2022, was the record date with respect to the distribution of five-year listed warrants (the “Series A Warrants”). The Series A Warrants and the shares of common stock issuable upon the exercise of the Series A Warrants were registered on a registration statement that was filed with 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 $70.00 per share, for a period of five years. Should warrant holders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/100 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, 2025, were exercised at the price of $70.00 per share, gross proceeds to us would be approximately $101.2 million and we would as a result issue an additional 1,445,007 shares of common stock.
Inflation
The current 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 2.7% (not seasonally adjusted) increase for the 12-month period ending December 31, 2025. 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 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are filed with this report as described under Item 15.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.