Zacks Small Cap Research – SQFT: Steady Results In Pandemic & Transitioning Towards Higher-Growth Assets


By M. Marin

NASDAQ:SQFT

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Presidio Property Trust (NASDAQ:SQFT) is a REIT that has a diversified portfolio of commercial and industrial properties and model homes, with minimal exposure to the retail real estate market and a focus on $10 million to $30 million property transactions generally in smaller markets. Management believes these markets have been less impacted by depressed demand during the economic downturn.

In fact, industry data indicates that smaller markets, which are less dependent on public transportation, have been more stable during the COVID-19 pandemic than larger metropolitan markets where workers rely on public transportation to commute to work.

For example, the WSJ reports that the percentage of employees returning to offices in New York City where people rely on mass transit, 10% as of September 18, 2020, trails the national average of roughly 25%. Additionally, a study conducted by Newmark Research found that public transportation will be a likely component to how rapidly a real estate market recovers.

Targeting Growing Markets

Presidio’s target markets are characterized by growth, significantly lower reliance on mass transit, higher than national average employment rates and lower cost of living and where demand for housing, industrial and office space is growing. This is an important factor behind the company’s high occupancy rates, which have remained above 83%, throughout the pandemic.

Attractive Model Home Business

SQFT is also optimistic about the model home business and has increased its model home portfolio significantly since 2018, particularly in markets such Texas and Florida, which are among the states with the highest inflow of residents relocating from other regions. From 2012 to 2019, SQFT achieved a 21.1% CAGR on the equity invested in the model home business.

The company is transitioning its property portfolio out of retail assets and into industrial and commercial properties and model homes, which are property classes that management believes hold greater growth prospects than retail. Management has earmarked expected gains from asset divestitures to reinvest in the portfolio and also to advance deleveraging initiatives.

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