CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this report and in our other filings with the Securities and Exchange Commission (the “SEC”). Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, financial condition, liquidity, capital resources, cash flows, results of operations and other financial and operating information.  Forward-looking statements included in this report include, but are not limited to, statements regarding purchases and sales of properties, plans for financing and refinancing our properties, the adequacy of our capital resources, changes to the markets in which we operate, our business plans and strategies, and our payment of dividends.When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Important factors that may cause actual results to differ from projections include, but are not limited to:

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

See Notes to Condensed Consolidated Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Three Months Ended March 31, 2021and 2020

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash FlowsChanges in Equity

For the Three Months Ended and March 31, 2022 and 2021

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

Presidio Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

March 31, 20212022

1. ORGANIZATION

Organization. Presidio Property Trust, Inc. (“we”, “our”, “us” or the “Company”) is an internally-managed real estate investment trust (“REIT”), with holdingholdings in office, industrial, retail and model home properties. We were incorporated in the State of California on September 28, 1999, and in August 2010, we reincorporated as a Maryland corporation. In October 2017, we changed our name from “NetREIT, Inc.” to “Presidio Property Trust, Inc.” Through Presidio Property Trust, Inc., its subsidiaries, and its partnerships, we own 1312 commercial properties in fee interest, 2two of which we own as a partial interests in through our holdingsinterest in various affiliates, in which we serve as general partner, member and/or manager.

The Company or one of its affiliates operates the following partnerships during the periods covered by these condensed consolidated financial statements:

The Company has determined that the limited partnerships in which it owns less than 100% should be included in the Company’s consolidated financial statements as the Company directs their activities and has control of such limited partnerships.

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (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 levelcorporate-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 our subsidiaries as a taxable REIT subsidiary (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. The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any major tax jurisdictions.

Initial Public Offering. On October 6, 2020, we completed an initial public offering ("IPO"), selling 500,000 shares of our Series A Common Stock at $5.00 per share. Proceeds from our IPO were $2.0 million after deducting approximately $0.5 million in underwriting discounts, commissions and fees and before giving effect to $0.5 million in other expenses relating to the IPO. Incremental costs of $0.5 million that were directly attributable to issuing new shares were deducted from equity in the Consolidated Statements of Equity, while costs that were not directly related to issuing new shares of $0.5 million were expensed in deferred offering costs in the Consolidated Statements of Operation. We utilized the net proceeds of this offering for general corporate and working capital purposes.

Reverse Stock Split. On July 29, 2020, we amended our charter to effect a one-for-2-for-two reverse stock split of every outstanding share of our Series A Common Stock. The financial statements and accompanying footnotes have been retroactively restated to reflect the reverse stock split.

Liquidity. Additional Offerings & Warrants. Our Form S-3 Registration Statement was declared effective by the SEC on April 27, 2021.  Under this registration statement, we may offer and sell from time to time, in one or more series, subject to limitation that may apply (such as under Rule 415 of the Securities Act of 1933) various securities of the Company for total gross proceeds of up to $200,000,000. On July 12, 2021, we entered into a securities purchase agreement with a single U.S. institutional investor for the purchase and sale of 1,000,000 shares of our Series A Common Stock, warrants (“Common Stock Warrants”) to purchase up to 2,000,000 shares of Series A Common Stock and pre-funded warrants (“Pre-Funded Warrants”) to purchase up to 1,000,000 shares of Series A Common Stock. The shares of Series A Common Stock, Pre-Funded Warrants and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrants were issued pursuant to a prospectus supplement to the Form S-3 Registration Statement, with the Common Stock Warrants issued in a concurrent private placement.  Each share of Series A Common Stock and accompanying Series A Common Stock Warrants were sold together at a combined offering price of $5.00, and each share of Common Stock and accompanying Pre-Funded Warrants were sold together at a combined offering price of $4.99. The Pre-Funded Warrants were exercised in full during August 2021 at a nominal exercise price of $0.01 per share. The Common Stock Warrants have an exercise price of $5.50 per share, were exercisable upon issuance, and will expire five years from the date of issuance. 

In connection with this additional offering, we agreed to issue the Placement Agent Warrants to purchase up to 80,000 shares (the “Placement Agent Warrants”) 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 $6.25 and will expire five years from the date of issuance.  The Company registered for resale Series A Common Stock issuable upon exercise of Common Stock Warrants and Placement Agent Warrants issued in the July 2021 offering pursuant to a registration statement on Form S-11 that was declared effective by the SEC on September 17, 201914, 2021. 

The Company evaluated the accounting guidance in ASC 480 and ASC 815 regarding the classification of the Pre-Funded Warrant, Common Stock Warrants, and Placement Agent Warrants as equity or a liability and ultimately determined that it should be classified as permanent equity.  As of March 31, 2022, NaN of the Common Stock Warrants and Placement Agent Warrants have been exercised.

Warrant Dividend.  In January 2022 we distributed five-year listed warrants (the “Series A Warrants”) to our Series A Common Stockholders.  The Series A Warrants and the shares of Series A 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 Series A Common Stock and existing outstanding warrants as of the January 14, 2022 record date, or who acquired Series A 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 $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.  On the first day of trading SFQTW closed at $0.17 per warrant with 14,450,069 warrants in the public market.

Preferred Stock Series D.  On June 15, 2021, the Company executedcompleted its secondary offering of 800,000 shares of our 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock ("Series D Preferred Stock") for cash consideration of $25.00 per share to a Promissory Note (the “Polar Note”) pursuant to which Polar Multi-Strategy Master Fund, executed a loansyndicate of underwriters led by The Benchmark Company, LLC, as representative, resulting in approximately $18.1 million in net proceeds, after deducting the principal amount of $14.0 million tounderwriting discounts and commissions and the offering expenses paid by the Company. The Note bore interest atCompany granted the underwriters a fixed rate of 8% per annum and requires monthly interest-only payments. On September 1, 2020, we extended the maturity of the Polar Note from October 1,202045-day option to March 31, 2021, at which time the entire outstanding principal balance of $8.8 million and accrued and unpaid interest waspurchase up to be due and payable. On September 30, 2020 we paid a renewal fee of 4% on the unpaid principal balance of the Polar Note. The Company used the proceeds of the Polar Note to redeem all of the outstandingan additional 120,000 shares of Series BD Preferred Stock.  AsStock to cover over-allotments, which they exercised on June 17, 2021, resulting in approximately $2.7 million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company.  In total, the Company issued 920,000 shares of December 31, 2020, the outstanding principal balance of the Polar Note was approximately $7.7 million. During the first quarter of 2021, prior to maturity, the Polar Note was paid in full mainly from available cash on hand andSeries D Preferred Stock with net proceeds of property sales.approximately $20.5 million, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company and deferred offering costs. The Company has used these proceeds for general corporate and working capital purposes, including acquiring additional properties.  

Liquidity. The Company's 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, and the sale of equity or debt securities.  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. The Company is also seeking investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders and may seek a revolving line of credit to provide short-term liquidity. To ensure that we can effectively execute these objectives, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity.

PrincipalShort-term liquidity needs include paying our current operating costs, satisfying the debt service requirements of existing mortgages, completing tenant improvements, paying leasing commissions, and funding dividends to stockholders.  Future principal payments due on our mortgage notes payables, during the last nine months of 2021,2022, total approximately $11.3$9.7 million, of which $4.4$6.5 million is related to model home properties, and approximately $5.8 million is related to our World Plaza property ("World Plaza"), the loan for which contains an additional one-year extension feature.properties.  Management expects that the loan secured by World Plaza, which is scheduled to sell to an unrelated third party in the second quarter of 2021, will be paid in full within the one-year extension period.  Management also expects certain model home properties willcan be sold, and that the underlying mortgage notes will be paid off with sales proceeds while other mortgage notes can be refinanced, as the Company has historically been able to do in the past.  Additional principal payments will be refinanced.made with cash flows from ongoing operations.  The mortgage note payable for 300 N.P. is an amortizing loan with a balloon payment of $2.2 million due at maturity, on June 11, 2022, and is no longer subject to defeasance or yield maintenance.  The Company paid this note in full on May 11, 2022 with available cash on hand.  Additionally, the Company has committed to provide additional funds, or obtain financing, if need to a special purpose acquisition company, or "SPAC", for which we serve as the financial sponsor (as described below in Note 2. Significant Account Policies).

As the Company continues its operations, it may re-finance or seek additional financing; however, there can be no assurance that any such re-financing or additional financing 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 and/or certain discretionary spending, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives. Management believes that the combination of working capital on hand and the ability to refinance commercial and model home mortgages will fund operations through at least the next twelve months from the date of the issuance of these unaudited interim financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 20202021. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 20202021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021.2022.

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information and footnote disclosures required for annual consolidated financial statements have been condensed or excluded pursuant to rules and regulations of the SEC. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of our financial position, results of our operations, and cash flows as of, and for the three months ended March 31, 20212022 and 20202021, respectively. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 20202021. The condensed consolidated balance sheet as of December 31, 20202021 has been derived from the audited consolidated financial statements included in the Form 10-K filed with the SEC on March 30, 2021.2022. The results for the three months ended March 31, 20212022 are not necessarily indicative of the results to be expected for the full year ending December 31, 20212022 due to seasonal variationsreal estate market flections, available mortgage lending rates and other factors, such as the effects of the novel coronavirus (“COVID-19”19) and its possible influence on our future results.

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Presidio Property Trust and its subsidiaries, NetREIT Advisors, LLC and Dubose Advisors LLC (collectively, the “Advisors”), and NetREIT Dubose Model Home REIT, Inc. The consolidated financial statements also include the results of the NetREIT Partnerships and the Model Home Partnerships.  As used herein, references to the “Company” include references to Presidio Property Trust, its subsidiaries, and the partnerships. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company classifies the noncontrolling interests in the NetREIT Partnerships as part of consolidatedconsolidated net income (loss) in 20202022 and 20192021 and has includedincluded the accumulated amount of noncontrolling interests as part of equity since inception in February 2010. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interest will be remeasured, with the gain or loss reported in the statement of operations. Management has evaluated the noncontrolling interests and determined that they do not contain any redemption features.

Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the allocation of purchase price paid for property acquisitions between land, building and intangible assets acquired including their useful lives; valuation of long-lived assets, and the allowance for doubtful accounts, which is based on an evaluation of the tenants’ ability to pay. Actual results may differ from those estimates.

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). The Company capitalizes any expenditure that replaces, improves, or otherwise extends the economic life of an asset, while ordinary repairs and maintenance are expensed as incurred. The Company allocates the purchase price of acquired properties between the acquired tangible assets and liabilities (consisting of land, building,buildings, tenant improvements, 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), in each case based on their respective fair values.

The Company allocates the purchase price to tangible assets of an acquired property based on the estimated fair values of those tangible assets, assuming the property 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. In estimating the fair values of the tangible andassets, intangible assets, and liabilities acquired, the Company also considers information obtained about each property as a result of its pre‑acquisition due diligence, marketing and leasing activities.

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 but are not limited to 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, amongand other factors.

The value allocableattributable to the above-market or below-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.lease. The amounts allocated to above or below-market leases are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases. Amortization of above and below-market rents resulted in a net increase in rental income of approximately $1,000 and $30,000$13,000 for the three months ended March 31, 2022.  Amortization of above and below-market rents resulted in a net increase in rental income of approximately $1,000 for the three months ended March 31, 2021 and March 31, 2020, respectively..  

The value of in-place leases and unamortized lease origination costs areare amortized to expenses over the remaining term of the respective leases, which range from less than a year to ten years. The amount allocated to acquired 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 the Company would have paid to a third-party to secure a new tenant reduced by the expired term of the respective lease. The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease. Amortization expense related to these assets was approximately $0.1 million$52,000 and $0.13 million$116,000, respectively, for the three months ended March 31, 2022 and March 31, 2021 and March 31, 2020, respectively.

Real Estate Held for Sale and Discontinued Operations. Real estate sold during the current period is classified as “real estate held for sale” for all prior periods presented in the accompanying condensed 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 condensed 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..

Deferred Leasing Costs. Costs incurred in connection with successful property leases are capitalized as deferred leasing costs and amortized to leasing commission expense on a straight-line basis over the terms of the related leases which generally range from one to five years. Deferred leasing costs consist of third-partythird-party leasing commissions. Management re-evaluates the remaining useful lives of leasing costs as the creditworthiness of the tenants and economic and market conditions change. If management determines the estimated remaining life of the respective lease has changed, the amortization period is adjusted. At March 31, 20212022 and December 31, 20202021, the Company had net deferred leasing costs of approximately $1.5$1.1 million and $1.9$1.3 million, respectively. Total amortization expense for the three months ended March 31, 20212022 and March 31, 2020, was approximately $86,000 and $99,000, respectively.

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. Depreciation and$95,000.  Total amortization expense for the three months ended March 31, 2021 and March 31, 2020, was approximately $1.4 million and $1.6 million, respectively, and is included in depreciation and amortization in the accompanying condensed consolidated statements of operations.$85,000.

Cash Equivalents and Restricted Cash. At March 31, 20212022 and December 31, 20202021, we had approximately $7.0$22.5 million  and $11.5$14.7 million in cash, cash equivalents and restricted cash, respectively, of which approximately $4.0$4.6 million and $4.2$4.7 million represented restricted cash, respectively.  OurThe Company considers all short-term, highly liquid investments that are both readily convertible to cash and have an original maturity of three months or less at the date of purchase to be cash equivalents. Items classified as cash equivalents include money market funds. Cash balances in individual banks may exceed the federally insured limit of $250,000 by the Federal Deposit Insurance Corporation (the "FDIC"). No losses have been experienced related to such accounts. At March 31, 2022and restricted cash consist of invested cashDecember 31, 2021, the Company had approximately $15.2 million and cash$7.3 million, respectively, in our operating accounts and are helddeposits in bank accounts at third party institutions.financial institutions that exceeded the federally insurable limits. Restricted cash typically consists of funds held in escrow for Company lenders for properties held as collateral by lenders to be usedthe lenders. The funds in escrow are for payment of property taxes, insurance, leasing costs and capital expenditures and leasing commissions.expenditures.

Real Estate Held for Sale. Real estate held for sale during the current period is classified as “real estate held for sale” for all prior periods presented in the accompanying condensed consolidated financial statements. Mortgage notes payable related to the real estate held for sale during the current period are classified as “mortgage notes payable related to real estate held for sale, net” for all prior periods presented in the accompanying condensed consolidated financial statements. As of March 31, 20212022, 3one commercial propertiesproperty met the criteria to be classified as held for sale (World Plaza, Highland Court and 3 buildings at Executive Office Park) and 16four model homes were classified as held for sale.

Deferred Financing Costs. Costs incurred including: legal fees, origination fees, and administrative fees, in connection with debt financing are capitalized as deferred financing costs and amortized using the straight-line method.  As of March 31, 2021 and December 31, 2020,  unamortized deferred financing costs related to mortgage notes payable were approximately $0.9 million and $0.8 million. In 2019, the Company incurred debt financing costs related to the execution of the Polar Note (see 8. Note Payable). At December 31, 2020, unamortized deferred financing cost related to the Polar Note were approximately $0.2 million.For the three months ended March 31, 2021 and March 31, 2020, total amortization expense related to the mortgage notes payable deferred financing costs was approximately $1.2 million and $1.6 million, respectively. For the three months ended March 31, 2021 and March 31, 2020, total amortization expense related to the Polar Note was approximately $0.2 million and $0.3 million, respectively. Amortization of deferred financing costs are included in interest expense in the accompanying consolidated statements of operations.

Deferred Offering Costs.Deferred offering costs represent legal, accounting and other direct costs related to our public offerings. Total deferred offering costs, asAs of March 31, 20212022 and December 31, 20202021, were we have incurred approximately $0.1 million,$75,000 and $135,000, at the end of each period.  These costs include directare related to our offering of common and preferred stock in connection with the sponsorship, through our wholly-owned subsidiary Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), of a special purpose acquisition company (“SPAC”) initial public offering as of December 31, 2021.  As of March 31, 2022, these costs are related to the preparation of a registration statement on Form S-3 filed on December 29, 2020, and amended on April 13, 2021. statement.  These costs were deferred and recorded as a long-term asset at March 31, 20212022 and December 31, 20202021.

Impairments 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 itsthe carrying amount at which time the property is written-down to fair value. The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including but not limited to revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Since our properties typically have a long life, the assumptions used to estimate the future recoverability of carrying value requires significant management judgment. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income because recording an impairment charge results in a negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.

Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. 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.

During the fourth quarter of 2020, the Company recorded its Highland Court property (“Highland Court”) as held for sale and subsequently entered into a purchase and sale agreement (“PSA”) with an unrelated third party.  Highland Court had a book value of approximately $10.5 million prior to entering into the PSA. The final selling price as agreed upon in the PSA is approximately $10.2 million. As such, the Company recorded a $0.3 million non-cash impairment in the accompanying condensed consolidated statement of operations at March 31, 2021.  The sale is expected to occur in May 2021.    

Fair Value Measurements.  Under GAAP, weCertain assets and liabilities are required to measure certain financialinstrumentsbe carried at fair value, on a recurring basis. In addition, weor if long-lived assets are requireddeemed to measure other non-financial and financial assets atbe impaired, to be adjusted to reflect this condition. The guidance requires disclosure of fair value on a non-recurring basis (e.g., carrying valuevalues calculated under each level of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one ofinputs within the following three categories:hierarchy:

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 2.2. 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-party may rely more on models with inputs based on information available only to that independent third party.-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.  Additionally, when determiningAs of March 31, 2022 and December 31, 2021, our marketable securities presented on the balance sheet were measured at fair value using Level 1 market prices and totaled approximately $1.0 million and $1.5 million, respectively, with a cost basis of a liabilityapproximately $1.0 million and $1.6 million, respectively.  There were no financial liabilities measured at fair value as of March 31, 2022 and December 31, 2021.

Earnings per share (“EPS”). The EPS on Common stock has been computed pursuant to the guidance in circumstancesFASB 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 quoted price in an active market for an identical liability is not available, we measure fair value using (i) a valuation techniquenet loss has been incurred, all potentially dilutive common stock shares are considered anti-dilutive and thus are excluded from the calculation. Securities that usesare excluded from the quoted pricecalculation 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.weighted average dilutive common stock, because their inclusion would have been antidilutive, are:

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. 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.

Variable Interest Entity. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. Our determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether we participated in the design of the entity and the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.

We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in the VIE. Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative approach focused on identifying which reporting entity has both: (i) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion continually.  We consolidate any VIE of which we are the primary beneficiary.

The Company is involved in the formation of an entity considered to be Variable Interest Entity (“VIE”). The Company evaluates the consolidation of this entity as required pursuant to ASC Topic 810 relating to the consolidation of such VIE. The Company’s determination of whether it is the primary beneficiary of the VIE is based in part on an assessment of whether or not the Company and its related parties have the power to direct activities of the VIE and are exposed to the majority of the risks and rewards of the entity.  

Following the completion of the Murphy Canyon IPO, we determined that Murphy Canyon is a Variable Interest Entity ("VIE") in which we have a variable interest because we participated in its formation and design, manage the significant activities, and Murphy Canyon does not have enough equity at risk to finance its activities without additional subordinated financial support. We have also determined that Murphy Canyon's public stockholders do not have substantive rights, and their equity interest constitutes temporary equity, outside of permanent equity, in accordance with ASC 480-10-S99-3A. As such, we have concluded that we are currently the primary beneficiary of Murphy Canyon as a VIE, as we have the right to receive benefits or the obligation to absorb losses of the entity, as well as the power to direct a majority of the activities that significantly impact Murphy Canyon's economic performance. Since we are the primary beneficiary, Murphy Canyon is consolidated into our condensed consolidated financial statements.  See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon.

Shares Subject to Possible Redemption.The Company accounts for common stock issued by the SPAC, (which is consolidated in our condensed consolidated financial statements), that is subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Under ASC 480, shares of common stock subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable shares of common stock (including shares of common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, shares of common stock are classified as shareholders’ equity. 

All of the Public Shares of Murphy Canyon SPAC (Class A Common Shares) contain a redemption feature which allows for the redemption of such Public Shares in connection with our liquidation, if there is a stockholder vote or tender offer in connection with our initial business combination and in connection with certain amendments to our amended and restated certificate of incorporation. In accordance with SEC and its guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of a company require common stock subject to redemption to be classified outside of permanent equity.  Accordingly, as of March 31, 2022, the Public Shares are presented as temporary equity, outside the shareholder's equity section of the Company's March 31, 2022 balance sheet.

Given that the Public Shares were issued with other freestanding instruments (i.e., public warrants which were classified as permanent equity as described below), the proceeds and initial carrying value of Class A common stock classified as temporary equity was allocated in accordance with ASC 470-20. The Murphy Canyon Class A common stock is subject to ASC 480-10-S99. In addition, because it is probable that the equity instrument will become redeemable, we have the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. We have elected to recognize the accretion resulting from changes in redemption value immediately during the three months ended March 31, 2022. See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon.

Warrant Instruments SPAC. Murphy Canyon accounts for warrants in accordance with the guidance contained in ASC 480 and FASB ASC 815, “Derivatives and Hedging”. Under ASC 815-40 and ASC 840 warrants that meet the criteria for equity treatment are recorded in stockholder’s equity. The warrants are subject to re-evaluation of the proper classification and accounting treatment at each reporting period. If the warrants no longer meet the criteria for equity treatment, they will be recorded as a liability and remeasured each period with changes recorded in the statement of operations. The warrants meet the criteria for classification as equity because they are not exercisable until after the SPAC business combination is completed, at which point the common shares are no longer redeemable and because they are indexed the Company's common stock and meet the other criteria for equity classification.   See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon.

Subsequent Events. We evaluate subsequent events up until the date the condensed consolidated financial statements are issued.

Recently Issued and Adopted Accounting Pronouncements.  In June 2017, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, amendedinamendedinFebruary 2020 with ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. While ASU 2016-13 was effective for periods beginning after December 15, 2019, the issuance of ASU 2020-02 has allowed for the delay in adoption for certain smaller public companies and is now effective for fiscal periods beginning after December 15, 2022. Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings. The Company is continuing to evaluate the impact of this guidance on its financial statements and does not believe it will have a material impact on the financial statements.

In August 2020, the FASB issued ASU No.2020-06,Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.  The amendments in ASU No.2020-06 are effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  The Company has adopted this guidance with no impact on our financial statements.

3. RECENT REAL ESTATE TRANSACTIONS

DuringAcquisitions during the three months ended March 31, 2022: 

Acquisitions during the three months ended March 31, 2021, the Company disposed of the following properties:: 

Dispositions during the three months ended March 31, 2022:

Dispositions during the three months ended March 31, 2021:

During the three months ended March 31, 2021, the Company disposed of 12 model homes for approximately $4.9 million and recognized a gain of approximately $0.4 million.

During the three months ended March 31, 2021, the Company did not acquire any properties or model homes.

During the three months ended March 31, 2020, the Company disposed of the following properties:

During the three months ended March 31,2020, the Company acquired 10 model homes for approximately $3.6 million. The purchase price was paid through cash payments of approximately $1.1 million and mortgage notes of approximately $2.5 million.

During the three months ended March 31,2020, the Company disposed of 8 model homes for approximately $2.8 million and recognized a gain of approximately $0.2 million.

4. REAL ESTATE ASSETS

The Company owns a diverse portfolio of real estate assets. The primary types of properties the Company invests in are office, industrial, retail, and triple-net leased model home properties located primarily in Colorado, with 4properties.  We have 5 commercial properties located in Colorado, 4 in North Dakota, and 21 in Southern California.California, 1 in Texas and 1 in Maryland. Our model home properties are located in 43 states. As of March 31, 20212022, the Company owned or had an equity interest in:

A summary of the properties owned by the Company as of March 31, 2022 and December 31, 2021 is as follows:

⁽¹⁾ This property was sold during the three months ended March 31, 2022.

(2) This property is held for sale as of March 31, 20212022.

⁽²³⁾ Genesis Plaza is owned by 2 tenants-in-common, each of which owns 57% and 43%, respectively, and we beneficially own an aggregate of 76.4%.

(4) Mandolin is owned by NetREIT Palm Self-Storage LP, through its wholly owned subsidiary NetREIT Highland LLC, and the Company is the sole general partner and owns 61.3% of NetREIT Palm Self-Storage LP.

(5) Includes 16 Model HomeHomes listed as held for sale as of March 31, 20212022.

5. LEASE INTANGIBLES

The following table summarizes the net value of other intangible assets acquired and the accumulated amortization for each class of intangible asset:

At each of March 31, 20212022 and December 31, 20202021, gross lease intangible assets of $0.0 and $1.1 million, respectively, were included in real estate assets held for sale.  At each of March 31, 20212022 and December 31, 20202021, accumulated amortization related to the lease intangible assets of $0.0 and $1.1 million, respectively, were included in real estate assets held for sale.

The net value of acquired intangible liabilities was $0.1 millionapproximately $59,407 and $73,130 relating to below-market leases at each of March 31, 20212022 and December 31, 20202021., respectively.

Future aggregate approximate amortization expense for the Company's lease intangible assets is as follows:

The weighted average remaining amortization period of the intangible assets as of March 31, 2021 is 1.31 years.

6. OTHER ASSETS

Other assets consist of the following:

As of March 31, 2022, we owned common shares of 13 different publicly traded REITs and an immaterial amount of covered call options in four of those same REITs.  The gross fair market value on our publicly traded REIT securities was $978,840, with covered call options totaling $3,664.  As of March 31, 2022, the net fair value of our publicly traded REIT securities was $975,176 based on the March 31, 2022 closing prices.  As of December 31, 2021, we owned common shares of 19 different publicly traded REITs and an immaterial amount of covered call options in ten of those same REITs.  The gross fair market value on our publicly traded REIT securities was $1,529,185, with covered call options totaling $14,702.  As of December 31, 2021, the net fair value of our publicly traded REIT securities was $1,514,483 based on the December 31, 2021 closing prices. 

7. MORTGAGE NOTES PAYABLE

Mortgage notes payable consist of the following: