Overview

Company Performance

The company’s revenues were $25.9 million in the first quarter of 2024, a slight 0.7% decrease from $26.1 million in the first quarter of 2023. However, the company’s same-property net operating income (NOI) increased by 2.7% to $15.5 million due to a 2.1% increase in property revenue and a 1.1% increase in property expenses. The company had a net loss of $6 million in Q1 2024 compared to a net loss of $0.4 million in Q1 2023.

Revenue and Profit Trends

The company’s revenue decrease was primarily driven by lower market lease amortization and non-property revenue, partially offset by increased base rent and tenant reimbursements. Property expenses increased slightly, but same-property NOI still improved by 2.7%. The larger net loss in Q1 2024 was primarily due to higher interest expense, losses on investment securities, and non-cash losses from changes in the fair value of derivative liabilities.

Balance Sheet and Liquidity

The company had $38.5 million of cash, cash equivalents, and restricted cash at March 31, 2024, compared to $52.1 million at March 31, 2023. The company has debt maturities of $8.7 million over the next 12 months, which it expects to refinance. The company believes it has sufficient liquidity from cash on hand, cash generated from operations, and additional measures it can undertake like refinancing properties.

Revenue Analysis

Revenue (000s)	Q1 2024	Q1 2023	Change
Base Rent	$16,978	$16,651	+2.0%
Reimbursements	$6,124	$5,916	+3.6%
Market Lease Amortization	$1,401	$1,899	-26.2%
Other Revenue	$1,369	$1,600	-14.4%
Total Revenue	$25,872	$26,066	-0.7%

• Base rent increased due to contractual rent escalations.
  
• Reimbursements were higher due to higher property operating expenses.
• Market lease amortization decreased due to lower intangible asset balances.
• Other non-property revenue declined.

Expense Analysis

Property Operating Expenses

Expense (000s)	Q1 2024	Q1 2023	Change
Utilities	$2,302	$2,220	+3.7%
Repairs & Maintenance	$1,986	$2,002	-0.8%
Real Estate Taxes	$2,105	$2,044	+3.0%
Total	$9,050	$8,955	+1.1%

• Property operating expenses increased slightly by 1.1%.
• Real estate taxes were higher primarily due to higher property assessments.

Interest Expense

Expense (000s)	Q1 2024	Q1 2023	Change
Property Debt Interest	$6,234	$5,420	+15.1%
Convertible Note Interest	$543	$578	-6.1%
Amortization of Deferred Financing Costs	$628	$479	+31.1%
Total Interest Expense	$7,405	$6,477	+14.3%

• Higher property debt interest due to higher average interest rates and principal balances.
• Slightly lower interest on convertible notes.
• Higher deferred financing cost amortization.

Company Strengths & Weaknesses

Strengths

• Increasing same-property NOI.
• Ability to renew leases at higher rental rates.
• Reasonable leverage position currently.

Weaknesses

• Declining revenue from non-core operations.
  
• Exposure to inflation driving up interest expense.
• Large preferred stock dividends accumulating.
  

Outlook

The company expects its core portfolio to continue producing steady growth in same-property NOI. However, high inflation and rising interest rates present headwinds that could negatively impact earnings. The company aims to use cash from operations and refinancing to address near-term debt maturities. Longer term, the company hopes to reduce its leverage to provide more flexibility. However, the substantial preferred stock obligations remain an overhang on the company’s financial position that will need to be addressed at some point.

Overall, the core property operations appear relatively stable, but the heavy preferred stock obligations and challenging economic environment mean uncertainty still remains high for the company. Careful capital management will be needed in coming quarters.