Presidio Property Trust (SQFT) risk factors, FY2024 10-K

Risks Related to our Business, Properties and Operations

1. 01We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs
2. 02civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, wind and hail damage and floods, which may result in uninsured and underinsured losses
3. 03Inflation may materially and adversely affect our income, cash flow, results of operations, financial condition, liquidity, the ability to service our debt obligations, the market price of our securities and our ability to pay dividends and other distributions to our stockholders
4. 04Recent inflationary pressures could result in higher interest rates, which would have a negative impact on our business
5. 05Conditions in the financial markets could affect our ability to obtain financing on reasonable terms and have other adverse effects on our operations
6. 06Disruptions in the financial markets and uncertain economic conditions could adversely affect the value of our real estate investments
7. 07A decrease in real estate values could negatively affect our ability to refinance our existing mortgage obligations or obtain larger mortgages
8. 08The outbreak of any highly infectious or contagious disease could significantly and adversely impact our business, financial condition, results of operations and cash flows
9. 09complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise attractive investments or borrow funds on unfavorable conditions
10. 10Our portfolio of marketable securities, including covered call options, is subject to market, interest and credit risk that may reduce its value
11. 11We may be adversely affected by unfavorable economic changes in the geographic areas where our properties are located
12. 12Competition for properties may limit the opportunities available to us and increase our acquisition costs, which could have a material adverse effect on our growth prospects and negatively impact our profitability
13. 13Our inability to sell a property at the time and on the terms we desire could limit our ability to realize a gain on our investments and pay distributions to our stockholders
14. 14Lease default or termination by one of our major tenants could adversely impact our operations and our ability to pay dividends
15. 15A property that becomes vacant could be difficult to sell or re-lease and could have a material adverse effect on our operations
16. 16We may incur substantial costs in improving our properties
17. 17Uninsured and/or underinsured losses may adversely affect returns to our stockholders
18. 18Since we are not required to maintain specific levels of cash reserves, we may have difficulty in the event of increased or unanticipated expenses
19. 19We may have to extend credit to buyers of our properties and a default by such buyers could have a material adverse effect on our operations and our ability to pay dividends
20. 20We may be adversely affected by trends in office real estate
21. 21We may acquire properties in joint ventures, partnerships or through limited liability companies, which could limit our ability to control or liquidate such holdings
22. 22As a general partner or member in DownREIT entities, we could be responsible for all liabilities of such entities
23. 23Our ability to operate a property may be limited by contract, which could prevent us from obtaining the maximum value from such properties
24. 24We may acquire properties “as is,” which increases the risk that we will have to remedy defects or costs without recourse to the seller
25. 25In a sale-leaseback transaction, we are at risk that our seller/lessee will default, which could impair our operations and limit our ability to pay dividends
26. 26Our model home business is substantially dependent on the supply and/or demand for single family homes
27. 27We may be unable to acquire and/or manage additional model homes at competitive prices or at all
28. 28There are a limited number of model homes and competition to buy these properties may be significant
29. 29A significant percentage of our properties are concentrated in a small number of states, which exposes our business to the effects of certain regional events and occurrences
30. 30We may be required under applicable accounting principles and standards to make impairment charges against one or more of our properties
31. 31Discovery of toxic mold on our properties may adversely affect our results of operation
32. 32Our long-term growth may depend on obtaining additional equity capital
33. 33We currently are dependent on internal cash from our operations, financing and proceeds from property sales to fund future property acquisitions, meet our operational costs and pay dividends to our stockholders
34. 34There can be no assurance that distributions will be paid, maintained or increased over time
35. 35If we are unable to find suitable investments, we may not be able to achieve our investment objectives or continue to pay distributions
36. 36We depend on key personnel, and the loss of such persons could impair our ability to achieve our business objectives
37. 37We rely on third-party property managers to manage some of our properties and brokers or agents to lease our properties
38. 38We may change our investment and business policies without stockholder consent, and such changes could increase our exposure to operational risks
39. 39If we are deemed to be an investment company under the Investment Company Act, our stockholders’ investment return may be reduced
40. 40Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our Board of Directors or stockholders to approve proposals to acquire our Company or effect a change in control
41. 41Our rights and the rights of our stockholders to take action against our directors and officers are limited
42. 42active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action adjudicated
43. 43Our management faces certain conflicts of interest with respect to their other positions and/or interests outside of our Company, which could hinder our ability to implement our business strategy and to generate returns to our stockholders
44. 44Possible future transactions with our management or their affiliates could create a conflict of interest, which could result in actions that are not in the long-term best interests of our stockholders
45. 45We face system security risks as we depend on automated processes and the Internet

Risks related to cyber-attacks, cyber intrusions and other security breaches

1. 46Our failure to adopt, or use of advancements in information technology presents risks and challenges that may put us at a competitive disadvantage and adversely impact our business, reputation, results of operations, and financial condition
2. 47If any of the banking institutions in which we deposit funds ultimately fails, we may lose any amounts of our deposits over federally insured levels which could reduce the amount of cash we have available to distribute or invest and could result in a decline in our value

Risks Related to our Indebtedness

1. 48We have significant outstanding indebtedness, which requires that we generate sufficient cash flow to satisfy the payment and other obligations under the terms of our debt and exposes us to the risk of default under the terms of our debt
2. 49Our total gross indebtedness as of December 31, 2024 was approximately $102.8 million. We may incur additional debt for various purposes, including, without limitation, to fund future acquisitions and operational needs
3. 50Mortgage indebtedness and other borrowings increase our operational risks
4. 51Lenders often require restrictive covenants relating to our operations, which adversely affects our flexibility and may affect our ability to achieve our investment objectives
5. 52Financing arrangements involving balloon payment obligations may adversely affect our ability to pay distributions

Risks Related to our Status as a REIT and Related Federal Income Tax Matters

1. 53Failure to qualify as a REIT could adversely affect our operations and our ability to pay distributions
2. 54As a REIT, we may be subject to tax liabilities that reduce our cash flow
3. 55If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate
4. 56Our ownership of taxable REIT subsidiaries is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on arm’s length terms
5. 57We may be forced to borrow funds on a short-term basis, to sell assets or to issue securities to meet the REIT minimum distribution or other requirements or for working capital purposes
6. 58The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions that would be treated as sales for U.S. federal income tax purposes
7. 59Legislative or other actions affecting REITs could have a negative effect on our investors or us
8. 60The stock ownership limit imposed by the Code for REITs and our charter may discourage a takeover that could otherwise result in a premium price for our stockholders
9. 61Dividends payable by REITs generally are taxed at the higher ordinary income rate, which could reduce the net cash received by stockholders and may be detrimental to our ability to raise additional funds through any future sale of our common stock
10. 62Tax-exempt stockholders will be taxed on our distributions to the extent such distributions are unrelated business taxable income

Risks Related to our Common Stock, Preferred Stock and Series A Warrants

1. 63If we are unable to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock could be delisted, which could affect our common stock's market price and liquidity and reduce our ability to raise capital
2. 64Our Series D Preferred Stock is subordinate to our existing and future debt, and your interests could be diluted by the issuance of additional preferred stock and by other transactions
3. 65As a holder of shares of the Series D Preferred Stock, you have extremely limited voting rights
4. 66We could be prevented from paying cash dividends on the Series D Preferred Stock due to prescribed legal requirements
5. 67We may redeem the Series D Preferred Stock and you may not receive dividends that you anticipate if we redeem the Series D Preferred Stock
6. 68Holders of shares of the Series D Preferred Stock should not expect us to redeem the Series D Preferred Stock on or after the date they become redeemable at our option
7. 69The Series D Preferred Stock is not convertible into shares of our common stock, and investors will not realize a corresponding upside if the price of the common stock increases
8. 70The Change of Control right may make it more difficult for a party to acquire us or discourage a party from acquiring us
9. 71Listing on Nasdaq does not guarantee an active market for the Series D Preferred Stock and the market price and trading volume of the Series D Preferred Stock may fluctuate significantly
10. 72If the Series D Preferred Stock is delisted, the ability to transfer or sell shares of the Series D Preferred Stock may be limited and the market value of the Series D Preferred Stock will likely be materially adversely affected
11. 73Market interest rates may have an effect on the value of the Series D Preferred Stock
12. 74In the event of a liquidation, you may not receive the full amount of your liquidation preference
13. 75The market price of the Series D Preferred Stock could be substantially affected by various factors
14. 76actual or anticipated variations in quarterly operating results of us and our competitors
15. 77The market price and trading volume of our Series D Preferred Stock may be volatile, and you could experience a loss if you sell your shares
16. 78If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Series D Preferred Stock could decline
17. 79Broad market fluctuations could negatively impact the market price of our Series D Preferred Stock
18. 80The market price of our Series D Preferred Stock could be adversely affected by our level of cash distributions
19. 81A future issuance of stock could dilute the value of our Series D Preferred Stock
20. 82The Series A Warrants are immediately exercisable and may be exercised in accordance with their terms until their expiration at 5:00 p.m., New York City time, on the expiration date
21. 83An active trading market for our warrants may not continue to exist or remain active
22. 84Holders of our warrants will have no rights as a common stockholder until such holders exercise their warrants and acquire shares of our Series A Common Stock
23. 85We could be prevented from paying cash dividends on the Series A Common Stock due to prescribed legal requirements
24. 86Actions of activist stockholders may cause us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business

Risks Related to Legal and Regulatory Requirements

1. 87Costs of complying with governmental laws and regulations may reduce our net income and the cash available for distributions to our stockholders
2. 88Compliance with the Americans with Disabilities Act may require us to make unintended expenditures that could adversely impact our results of operations
3. 89Our property taxes could increase due to property tax rate changes, reassessments or changes in property tax laws, which may adversely impact our cash flows
4. 90Changes in U.S. accounting standards may adversely impact us
5. 91The costs of complying with environmental regulatory requirements, of remediating any contaminated property, or of defending against claims of environmental liability could adversely affect our operating results