Presidio Property Trust (SQFT): A Contrarian Play on Undervalued REITs Amid Model Home Momentum

The real estate sector has faced headwinds in 2025, with rising interest rates and concerns over oversupply in certain markets. Yet, Presidio Property Trust (NASDAQ: SQFT) is carving out a unique path, leveraging its niche focus on model homes and strategic moves to position itself as a potential contrarian play. Let's dissect how Q2 2025 developments—model home sales profitability, a reverse stock split's bid price recovery, and preferred stock dividends—could catalyze a rebound in this undervalued REIT.

Model Home Sales: A 9.4% Return Signals Strategic Precision

Presidio's Q2 2025 model home sales delivered a profit margin of $300,000 on $3.5M in revenue, with homes purchased between 2020–2023 at a total cost of $3.2M. This 9.4% return underscores the efficacy of its acquisition strategy, particularly in Sun Belt states like Texas, Alabama, and Tennessee, where it added 10 new homes in Q2 at a cost of $5.2M.

Model homes represent 34% of Presidio's net real estate assets and 24% of rental revenue, with 68 of 87 homes wholly owned. Their triple-net leases to homebuilders ensure steady cash flows, while an 83% tenant retention rate (Q4 2024) signals operational stability. The 2024 full-year model home sales of $24.8M, up from $18.9M in 2023, further validates this segment's growth trajectory.

Why it matters: In a volatile real estate market, Presidio's model homes act as a “cash flow engine” with built-in demand from homebuilders. This segment's scalability could help offset broader sector risks.

Reverse Stock Split: Bid Price Recovery and Nasdaq Compliance

In May 2025, Presidio executed a 1-for-10 reverse stock split to boost its share price above Nasdaq's $1 minimum bid requirement. By June, it achieved compliance, avoiding delisting—a critical milestone for investor confidence.

The split also tightened liquidity, potentially attracting institutional investors who avoid ultra-low-priced stocks. While SQFT's market cap remains modest at $5.97M, the reverse split's symbolic importance shouldn't be underestimated: it signals management's resolve to stabilize the stock and avoid regulatory penalties.

Preferred Stock Dividends: A High-Yield Catalyst for Income Investors

Presidio's 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock (SQFTP) offers a compelling entry point for income-focused investors. Dividends of $0.19531/month (equivalent to a 15.26% yield at its current price) are set for July–September 2025, with payments due in August, September, and October.

The preferred stock's $25 liquidation preference contrasts sharply with its trading price at a 30% discount, reflecting investor skepticism about Presidio's balance sheet. However, the dividend's consistency—no missed payments to date—could attract yield hunters willing to take on risk.

Risks to Consider

• Negative FFO: While net income improved to $1.7M in Q1 2025 (vs. a $5.8M loss in 2024), Funds from Operations (FFO) remain negative at $(1.2M), signaling cash flow challenges.
• Debt exposure: Mortgage notes payable total $94.4M, with interest costs rising 8% in 2024.
• Institutional skepticism: Major holders like International Assets Investment Management have reduced stakes by over 50%, citing valuation concerns.

The Contrarian Case for SQFT

Despite these risks, three factors make Presidio a compelling contrarian bet:
1. Undervalued assets: Model homes and Sun Belt properties are trading at a discount to their intrinsic value, with sales showing consistent profit margins.
2. Structural tailwinds: Rising homebuilder demand for model homes, coupled with tenant retention, could stabilize rental income.
3. Technical rebound potential: The reverse split and preferred dividends may attract sidelined investors, while a $1.00+ bid price opens the door to broader liquidity.

Investment Thesis

Buy: For risk-tolerant investors, SQFT presents a high-reward, high-risk opportunity at current levels. The combination of model home momentum, Nasdaq compliance, and preferred dividends could catalyze a rebound if operational improvements materialize.

Hold: Wait-and-see investors should monitor Q3 results for FFO stabilization and signs of institutional inflows.

Avoid: Conservative investors may prefer safer REITs with positive FFO and lower leverage.

Final Thoughts

Presidio Property Trust isn't without flaws, but its Q2 2025 moves—profitable model home sales, bid price recovery, and dividend discipline—align with a contrarian strategy. In a sector where many REITs are struggling, Presidio's niche focus and execution could position it as a survivor in the real estate downturn. For those willing to bet on a rebound, SQFT deserves a close look.

Stay tuned for updates on its Q3 FFO and institutional sentiment shifts.