The following discussion relates to our financial statements and should be read
in conjunction with the financial statements and notes thereto appearing
elsewhere in this report. Statements contained in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that are not
historical facts may be forward-looking statements. Such statements are subject
to certain risks and uncertainties, which could cause actual results to
materially differ from those projected. Some of the information presented is
forward-looking in nature, including information concerning projected future
occupancy rates, rental rate increases, project development timing and
investment amounts. Although the information is based on our current
expectations, actual results could vary from expectations stated in this report.
Numerous factors will affect our actual results, some of which are beyond our
control. These include the timing and strength of national and regional economic
growth, the strength of commercial and residential markets, competitive market
conditions, and fluctuations in availability and cost of construction materials
and labor resulting from the effects of worldwide demand, future interest rate
levels and capital market conditions. You are cautioned not to place undue
reliance on this information, which speaks only as of the date of this report.
We assume no obligation to update publicly any forward-looking information,
whether as a result of new information, future events or otherwise, except to
the extent we are required to do so in connection with our ongoing requirements
under federal securities laws to disclose material information. For a discussion
of important risks related to our business, and an investment in our securities,
including risks that could cause actual results and events to differ materially
from results and events referred to in the forward-looking information. See Item
1A for a discussion of material risks.



OVERVIEW



The Company operates as an internally managed diversified real estate investment
trust, or REIT.  The Company invests in a multi-tenant portfolio of commercial
real estate assets comprised of office, industrial, and retail properties and
model homes leased back to the homebuilder located primarily in the western
United States. As of December 31, 2022, including properties held for sale, the
Company owned or had an equity interest in:

• Eight office buildings and one industrial

building (“Office/Industrial Properties”) which total approximately 756,265

     rentable square feet,




  • Three retail shopping centers ("Retail Properties") which total
    approximately 65,242 rentable square feet, and




  • 92 model homes owned by five affiliated limited partnerships and one
    corporation ("Model Home Properties").




Presidio Property Trust's office, industrial and retail properties are located
California, Colorado, Maryland, North Dakota and Texas. Our Model Home
Properties are located in three states, primarily in Texas. We acquire
properties that are stabilized or that we anticipate will be stabilized within
two or three years of acquisition. We consider a property to be stabilized once
it has achieved an 80% occupancy rate for a full calendar year, or has been
operating for three years. Our geographical clustering of assets enables us to
reduce our operating costs through economies of scale by servicing a number of
properties with less staff, but it also makes us more susceptible to changing
market conditions in these discrete geographic areas.



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Most of our office and retail properties are leased to a variety of tenants
ranging from small businesses to large public companies, many of which are not
investment grade. We have in the past entered into, and intend in the future to
enter into, purchase agreements for real estate having net leases that require
the tenant to pay all of the operating expense (NNN Leases) or pay increases in
operating expenses over specific base years. Most of our office leases are for
terms of 3 to 5 years with annual rental increases. Our model homes are
typically leased for 2 to 3 years to the homebuilder on a triple net lease.
Under a triple net lease, the tenant is required to pay all operating,
maintenance and insurance costs and real estate taxes with respect to the leased
property.



We seek to diversify our portfolio by commercial real estate segments to reduce
the adverse effect of a single under-performing segment, geographic market
and/or tenant. We further supplement this at the tenant level through our credit
review process, which varies by tenant class.  For example, our commercial and
industrial tenants tend to be corporations or individual owned businesses.  In
these cases, we typically obtain financial records, including financial
statements and tax returns (depending on the circumstance), and run credit
reports for any prospective tenant to support our decision to enter into a
rental arrangement. We also typically obtain security deposits from these
commercial tenants. Our Model Home business partners are substantial
homebuilders with established credit histories. These tenants are subjected to
financial review and analysis prior to us entering into a sales-leaseback
transaction. Our ownership of the underlying property provides a further means
to avoiding significant credit losses.

SIGNIFICANT TRANSACTIONS IN 2022 and 2021

Acquisitions during the year ended December 31, 2022:

  • We acquired 31 Model Home Properties and leased them back to the
    homebuilders under triple net leases during the year ended December 31,
    2022. The purchase price for these properties was $15.6 million. The

purchase price consisted of cash payments of $4.8 million and mortgage notes

    of $10.8 million.

Acquisitions during the year ended December 31, 2021:

• On August 17, 2021, the Company, through its 61.3% owned subsidiaries

NetREIT Palm Self Storage, LP and NetREIT Highland LLC, acquired a single

story newly constructed 10,500 square foot building in Houston, Texas for a

purchase price of approximately $4.9 million, in connection with a like-kind

exchange transaction pursued under Section 1031 of the Internal Revenue Code

    of 1986, as amended (the "Code").  The building is 100% occupied under a
    15-year triple net lease and was purchased with all cash.

• On December 22, 2021, the Company purchased a 31,752 square foot building in

Baltimore, Maryland for a purchase price of approximately $8.9 million.

The

building is 100% occupied under a 5 year triple net lease to Johns

Hopkins University’s Bloomberg School of Public Health and was purchased

    with all cash.




  • We acquired 18 Model Home Properties and leased them back to the
    homebuilders under triple net leases during the year ended December 31,

2021. The purchase price for the properties was $8.4 million. The purchase

price consisted of cash payments of $2.7 million and mortgage notes of $5.7

    million.

Dispositions during the year ended December 31, 2022:

We review our portfolio of investment properties for value appreciation
potential on an ongoing basis, and dispose of any properties that no longer
satisfy our requirements in this regard, taking into account tax and other
considerations. The proceeds from any such property sale, after repayment of any
associated mortgage or repayment of secured or unsecured indebtedness, are
available for investing in properties that we believe will have a greater
likelihood of future price appreciation.

During year ended December 31, 2022, we disposed of the following properties:

• World Plaza, which was sold on March 11, 2022, for approximately $10.0

million and the Company recognized a loss of approximately $0.3 million.

• 31 model homes for approximately $17.5 million and the Company recognized a

    gain of approximately $5.4 million.






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Dispositions during the year ended December 31, 2021:

During year ended December 31, 2021, we disposed of the following properties:

• Waterman Plaza, which was sold on January 28, 2021, for approximately $3.5

million and the Company recognized a loss of approximately $0.2 million.

• Garden Gateway, which was sold on February 19, 2021, for approximately

$11.2 million and the Company recognized a loss of approximately $1.4 million.

  • Highland Court, which was sold on May 20, 2021, for approximately

$10.2 million and the Company recognized a loss of approximately $1.6 million.

• Executive Office Park, which was sold on May 21, 2021, for approximately

$8.1 million and the Company recognized a gain of approximately $2.5 million.

• 44 model homes for approximately $20.7 million and the Company recognized a

    gain of approximately $3.2 million.

Sponsorship of Special Purpose Acquisition Company

On January 7, 2022, we announced our sponsorship, through our wholly-owned
subsidiary, Murphy Canyon Acquisition Sponsor, LLC (the "Sponsor"), of a special
purpose acquisition company ("SPAC") initial public offering. The SPAC raised
$132,250,000 in capital investment to acquire an operating business. We, through
our wholly-owned subsidiary, owned approximately 23.49% of the issued and
outstanding stock in the entity upon the initial public offering being declared
effective and consummated (excluding the private placement units described
below), and that following the completion of its initial business combination
that the SPAC will operate as a separately managed, publicly traded entity. The
SPAC offered $132,250,000 units, with each unit consisting of one share of
common stock and three-quarters of one redeemable warrant.



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The Sponsor purchased an aggregate of 828,750 units (the "placement units") of
the SPAC at a price of $10.00 per unit, for an aggregate purchase price of
$8,287,500. The placement units were sold in a private placement that closed
simultaneously with the closing of the SPAC initial public offering. The Sponsor
has agreed to transfer an aggregate of 45,000 placement units (15,000 each) to
each of Murphy Canyon's independent directors.



On November 8, 2022, the SPAC entered into an agreement and plan of merger with
Conduit Pharmaceuticals Limited, a Cayman Islands exempted company ("Conduit"),
and Conduit Merger Sub, Inc., a Cayman Islands exempted company and the SPAC's
wholly owned subsidiary. If the merger agreement is approved by the SPAC's
stockholders and the transactions under the merger agreement  are consummated,
the SPAC's Cayman Island subsidiary will merge with and into Conduit, with
Conduit surviving the merger as the SPAC's wholly owned subsidiary. Pursuant to
the merger agreement, the outstanding ordinary shares (including the shares
issued upon conversion of all outstanding convertible debt, which conversion
shall have occurred prior to the consummation of the merger) of Conduit will be
converted into an aggregate of 65,000,000 shares of the SPAC's newly issued
common stock, with each such outstanding Conduit ordinary share (including the
ordinary shares issued upon conversion of all outstanding convertible debt,
which conversion shall have occurred prior to the consummation of the merger)
converted into newly issued shares of the SPAC's common stock on a pro rata
basis.



Initially, the SPAC was required to complete its initial business combination
transaction by 12 months from the consummation of its initial public offering or
up to 18 months if it extended the period of time to consummate a business
combination in accordance with its certificate of incorporation.  On January 26,
2023, at a special meeting of the stockholders, the stockholders approved a
proposal to amend the SPAC's certificate of incorporation to extend the date by
which it has to consummate a business combination up to 12 times, each such
extension for an additional one month period, from February 7, 2023, to February
7, 2024. The stockholders also approved a related proposal to amend the trust
agreement allowing the SPAC to deposit into the trust account, for each
one-month extension, one-third of 1% of the funds remaining in the trust account
following the redemptions made in connection with the approval of the extension
proposal at the special meeting. Following redemptions made in connection with
the special meeting, we owned approximately 65% of the issued and outstanding
equity of the SPAC.



On March 3, 2023 we loaned Murphy Canyon $300,000 to fund its trust account and
for operating expenses, and may lend up to $1.5 million in total.   The loan is
non-interest bearing, unsecured and will be repayable in full upon the earlier
of (i) the date on which Murphy Canyon consummates its initial business
combination and (ii) the date that its winding up is effective.



ECONOMIC ENVIRONMENT



According to Nareit's, the National Association of Real Estate Investment
Trusts, 2023 Outlook for the Economy, published on its website in December 2022,
the U.S. economy will continue to be marked by mixed economic growth results,
waning job gains, elevated inflation, and higher interest rates. The confluence
of these factors has resulted in increased uncertainty surrounding the economic
outlook. In November 2022, the Bloomberg consensus forecast survey placed the
odds of a U.S. recession within the next 12 months at 62.5%; the likelihood was
15% at the start of the year. While property fundamentals generally remained
solid at the end of 2022, there has been some evidence of softening going into
2023. The industrial, retail, and apartment property types maintained elevated
occupancy rates that were higher than their respective pre-pandemic levels.
Office occupancy continued its downward trajectory, dropping nearly 3% from its
2019 average. Four-quarter rent growth rates remained healthy for the
industrial, retail, and apartment sectors; office continued work toward
maintaining positive rent gains. Higher interest rates and debt costs are
throttling commercial real estate transaction volume. The combination of high
rates and weak valuations resulted in a dearth of REIT capital raising in the
third quarter of 2022; it is at its lowest level since 2009.



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CREDIT MARKET ENVIRONMENT


As noted in Nareit's "2023 REIT Outlook: REITs, Recessions, and Economic
Uncertainty" article published on its website in December 2022, the Bloomberg
forecast survey made in November of 2022 placed the odds of a recession in the
US within the next year at 62.5%. It was 15% at the beginning of 2022. The
commercial property market has shown some signs of softening as we enter 2023.
Higher interest rates and debt costs continue to slow commercial real estate
transaction volume. The combination of high rates and weak valuations resulted
in little REIT capital raising. In the third quarter of 2022, REIT capital
raising was at its lowest level since 2009.



Our ability to execute our business strategies, and in particular to make new
investments, is highly dependent upon our ability to procure external financing.
Our principal sources of external financing include the issuance of our equity
securities and mortgages secured by properties. The market for mortgages has
remained strong, and interest rates remain relatively low compared to historical
rates. We continue to obtain mortgages from the commercial mortgage-backed
securities ("CMBS") market, life insurance companies and regional banks.
Although these lenders are cautious about the outlook of the credit markets,
financing does appear to be available for desirable properties in strong
locations. Even though we have been successful in procuring equity financing and
secured mortgages financing in the past, we cannot be assured that we will be
successful at doing so in the future.



Rising inflation and elevated U.S. budget deficits and overall debt levels,
including as a result of federal pandemic relief and stimulus legislation and/or
economic or market and supply chain conditions, can continue to put upward
pressure on interest rates and could be among the factors that could lead to
even higher interest rates in the future. Prolonged higher interest rates could
adversely affect our overall business, income, and our ability to pay dividends,
including by reducing the fair value of many of our assets and adversely
affecting our ability to obtain financing on favorable terms or at all, and
negatively impacting the value of properties and the ability of prospective
buyers to obtain financing for properties we intend to sell. This may affect our
earnings results, reduce our ability to sell our assets, or reduce our
liquidity. Furthermore, our business and financial results may be harmed by our
inability to accurately anticipate developments associated with changes in, or
the outlook for, interest rates.

MANAGEMENT EVALUATION OF RESULTS OF OPERATIONS

Management's evaluation of operating results includes an assessment of our
ability to generate cash flow necessary to pay operating expenses, general and
administrative expenses, debt service and to fund distributions to our
stockholders. As a result, management's assessment of operating results gives
less emphasis to the effects of unrealized gains and losses and other non-cash
charges, such as depreciation and amortization and impairment charges, which may
cause fluctuations in net income for comparable periods but have no impact on
cash flows. Management's evaluation of our potential for generating cash flow
includes assessments of our recently acquired properties, our non-stabilized
properties, long-term sustainability of our real estate portfolio, our future
operating cash flow from anticipated acquisitions, and the proceeds from the
sales of our real estate assets.



In addition, management evaluates the results of the operations of our portfolio
and individual properties with a primary focus on increasing and enhancing the
value, quality and quantity of properties in our real estate holdings.
Management focuses its efforts on improving underperforming assets through
re-leasing efforts, including negotiation of lease renewals and rental rates.
Properties are regularly evaluated for potential added value appreciation and
cash flow and, if lacking such potential, are sold with the equity reinvested in
new acquisitions or otherwise allocated in a manner we believe is accretive to
our stockholders. Our ability to increase assets under management is affected by
our ability to raise borrowings and/or capital, coupled with our ability to
identify appropriate investments.



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Our results of operations for the years ended December 31, 2022 and 2021 are not
indicative of those expected in future periods. Management does not expect that
the level of commercial property sales experienced over the last 24 months to
continue in the near future.  Additionally, with the equity raised in June and
July 2021, management is working to increase the number of properties in the
portfolio with new acquisitions.  However, elevated real estate prices in both
commercial and residential real estate and compressing capitalization rates have
made it challenging to acquire properties that fit our portfolio needs.  As a
result, we did not find any suitable commercial properties to acquire during
2022, but we were able to acquired 31 Model Home Properties.  Management will
continue to evaluate potential acquisitions in an effort to increase our
portfolio of commercial real estate.



CRITICAL ACCOUNTING POLICIES



As a company primarily involved in owning income generating real estate assets,
management considers the following accounting policies critical as they reflect
our more significant judgments and estimates used in the preparation of our
financial statements and because they are important for understanding and
evaluating our reported financial results. These judgments affect the reported
amounts of assets and liabilities and our disclosure of contingent assets and
liabilities as of the dates of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. With different estimates
or assumptions, materially different amounts could be reported in our financial
statements. Additionally, other companies may utilize different estimates that
may impact the comparability of our results of operations to those of companies
in similar businesses.



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



We allocate the purchase price to tangible assets of an acquired property based
on the estimated fair values of those tangible assets assuming the building 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. We also consider information obtained about each property as a
result of its pre-acquisition due diligence, marketing and leasing activities in
estimating the fair values of the tangible and intangible assets and liabilities
acquired.



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 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, among other factors.



The value allocable to the above-market or below-market 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.



The value of in-place leases and unamortized lease origination costs are
amortized to expense over the remaining term of the respective leases, which
range from less than a year to ten years. The amount allocated to acquire
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 we would have paid to
a third party to secure a new tenant reduced by the expired term of the
respective lease.



Real Estate Held for Sale and Discontinued Operations. Real estate sold or to be
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.



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Impairment of Real Estate Assets. We review the carrying value of each property
to determine if circumstances that indicate impairment in the carrying value of
the investment exist or that depreciation periods should be modified. If
circumstances support the possibility of impairment, we prepare a projection of
the undiscounted future cash flows, without interest charges, of the specific
property and determine if the investment in such property is recoverable. If
impairment is indicated, the carrying value of the property is written down to
its estimated fair value based on our best estimate of the property's discounted
future cash flows.



Goodwill and Intangible Assets. Intangible assets, including goodwill and lease
intangibles, are comprised of finite-lived and indefinite-lived assets. Lease
intangibles represents the allocation of a portion of the purchase price of a
property acquisition representing the estimated value of in-place leases,
unamortized lease origination costs, tenant relationships and land purchase
options. Intangible assets that are not deemed to have an indefinite useful life
are amortized over their estimated useful lives. Indefinite-lived assets are not
amortized.



We test for impairment of goodwill and other definite and indefinite lived
assets at least annually, and more frequently as circumstances warrant.
Impairment is recognized only if the carrying amount of the intangible asset is
considered to be unrecoverable from its undiscounted cash flows and is measured
as the difference between the carrying amount and the estimated fair value of
the asset.



Sales of Real Estate Assets. Generally, our sales of real estate would be
considered a sale of a nonfinancial asset as defined by ASC 610-20. If we
determine we do not have a controlling financial interest in the entity that
holds the asset and the arrangement meets the criteria to be accounted for as a
contract, we would derecognize the asset and recognize a gain or loss on the
sale of the real estate when control of the underlying asset transfers to the
buyer.



Revenue Recognition. We recognize minimum rent, including rental abatements,
lease incentives and contractual fixed increases attributable to operating
leases, on a straight-line basis over the term of the related leases when
collectability is reasonably assured and record amounts expected to be received
in later years as deferred rent receivable. If the lease provides for tenant
improvements, we determine whether the tenant improvements, for accounting
purposes, are owned by the tenant or by us. When we are the owner of the tenant
improvements, rental revenue begins when the tenant takes possession or has
control of the physical use of the leased space and any tenant improvement
allowance, the tenant is not considered to have taken physical possession or
have control of the physical use of the leased asset until the tenant
improvements are substantially completed. When the tenant is the owner of the
tenant improvements, any tenant improvement allowance (including amounts that
the tenant can take in the form of cash or a credit against its rent) that is
funded is treated as a lease incentive and amortized as a reduction of revenue
over the lease term. Tenant improvement ownership is determined based on various
factors, including, but not limited to:

• whether the lease stipulates how a tenant improvement allowance may be spent;

• whether the amount of a tenant improvement allowance is in excess of market

    rates;

• whether the tenant or landlord retains legal title to the improvements at the

    end of the lease term;

• whether the tenant improvements are unique to the tenant or general-purpose in

nature; and

• whether the tenant improvements are expected to have any residual value at the

    end of the lease.




We record property operating expense reimbursements due from tenants for common
area maintenance, real estate taxes, and other recoverable costs in the period
the related expenses are incurred.



We make estimates of the collectability of our tenant receivables related to
base rents, including deferred rent receivable, expense reimbursements and other
revenue or income. We specifically analyze accounts receivable, deferred rent
receivable, historical bad debts, customer creditworthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. In addition, with respect to tenants in
bankruptcy, management makes estimates of the expected recovery of pre-petition
and post-petition claims in assessing the estimated collectability of the
related receivable. In some cases, the ultimate resolution of these claims can
exceed one year. When a tenant is in bankruptcy, we will record a bad debt
reserve for the tenant's receivable balance and generally will not recognize
subsequent rental revenue until cash is received or until the tenant is no
longer in bankruptcy and has the ability to make rental payments.



Sales of real estate are recognized generally upon the transfer of control,
which usually occurs when the real estate is legally sold. The application of
these criteria can be complex and required us to make assumptions. We believe
the relevant criteria were met for all real estate sold during the periods
presented.



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Income Taxes. We have elected to be taxed as a REIT under Sections 856 through
860 of 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 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 such subsidiaries
as taxable REIT subsidiaries (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.



Fair Value Measurements. Certain assets and liabilities are required to be
carried at fair value, or if long-lived assets are deemed to be impaired, to be
adjusted to reflect this condition. The guidance requires disclosure of fair
values calculated under each level of inputs within the following hierarchy:

• Level 1: unadjusted quoted prices in active markets that are accessible at

    the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted

prices for identical or similar instruments in markets that are not active,

and model-derived valuations in which significant inputs and significant

    value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is

available that requires inputs that are both significant to the fair value

    measurement and unobservable.




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. 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 may rely more on models with inputs based on information available
only to that independent third-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.  As of December 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 $0.8 million and $1.5 million,
respectively, with a cost basis of approximately $0.9 million and $1.6 million,
respectively. There were no financial liabilities measured at fair value as of
December 31, 2022 and December 31, 2021.



Additionally, when determining the fair value of a liability in circumstances in
which a quoted price in an active market for an identical liability is not
available, we measure fair value using (i) a valuation technique that uses the
quoted price 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. 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.



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.



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Earnings per share ("EPS"). The EPS on common stock has been computed pursuant
to the guidance in FASB 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 net
loss has been incurred, all potentially dilutive common stock shares are
considered anti-dilutive and thus are excluded from the calculation. Securities
that are excluded from the calculation of weighted average dilutive common
stock, because their inclusion would have been antidilutive, are:





                                      For the Year Ended December 31,
                                          2022                  2021

Common Stock Warrants                       2,000,000          2,000,000
Placement Agent Warrants                       80,000             80,000
Series A Warrants                          14,450,069                  -
Unvested Common Stock Grants                  349,042            295,471

Total potentially dilutive shares 16,879,111 2,375,471

RESULTS FROM OPERATIONS FOR THE YEARS ENDED December 31, 2022 AND 2021

Our results from operations for 2022 and 2021 are not indicative of those
expected in future periods as we expect that rental income, interest expense,
rental operating expense, general and administrative expenses, and depreciation
and amortization will significantly change in future periods as a result of the
assets sold over the last two years.



Revenues.  Total revenue was approximately  $17.8 million for the year ended
December 31, 2022, compared to approximately $19.2 million for the same period
in 2021, a decrease of approximately $1.4 million or 7%. The decrease in rental
income reported in 2022 compared to 2021 is related to the sale of four
commercial properties during 2021 and the common area maintenance recovery
("CAM") income associated with those properties, and the sale of World Plaza in
March of 2022.  The CAM reduction for the year ended December 31, 2022 as
compared to the same period in 2021, totaled approximately $0.9 million.  The
decrease in rental income is also connected to the reduction of model homes in
2021 (going from 118 at the beginning of the year to 92 at December 31, 2021).
As of December 31, 2022, we owned 92 model homes, the same number of homes as of
December 31, 2021.  The decrease in rental income was partially offset by the
acquisition of our Mandolin and Baltimore properties during August and December
2021, respectively.



Rental Operating Costs.  Rental operating costs were approximately $5.8 million
for the year ended December 31, 2022 compared to approximately $6.2 million for
the same period in 2021, a decrease of approximately $0.3 million or 5%. Rental
operating costs as a percentage of total revenue was 32.9% and 32.2% for the
years ended December 31, 2022 and 2021, respectively. The decrease in rental
operating costs for the years ended December 31, 2022 compared to 2021 is mainly
due to the overall reduction in commercial properties.



General and Administrative. General and administrative ("G&A") expenses
were approximately $6.2 million for the year ended December 31, 2022, compared
to approximately $6.2 million for the same period in 2021, representing a
decrease of approximately $62,000 or 1%. As a percentage of total revenue, our
general and administrative costs was approximately 34.7% and 32.4% for the years
ended December 31, 2022 and 2021, respectively. The G&A expense for the years
ended December 31, 2022 was affected by a reduction in payroll costs totaling
approximately $878,000, including stock compensation, off set by the increase in
D&O insurance for the SPAC totaling approximately $465,000 and higher accounting
and consulting fees of approximately $412,000.

Depreciation and Amortization. Depreciation and amortization expenses
were approximately $5.5 million for the year ended December 31, 2022, compared
to approximately $5.4 million for the same period in 2021.

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Asset Impairments . We review the carrying value of each of our real estate
properties annually to determine if circumstances indicate an impairment in the
carrying value of these investments exists. During  2021 , we recognized a
non-cash impairment charge of approximately  $0.6 million  on Highland Court and
300 N.P. This impairment charges reflect management's revised estimate of the
fair market value based on sales comparable of like property in the same
geographical area as well as an evaluation of future cash flows or an executed
purchase sale agreement. The Company did not recognize a non-cash impairment
during the year ended December 31, 2022 .



Interest Expense-mortgage notes.  Interest expense, including amortization of
deferred finance charges was approximately $4.7 million for the year ended
December 31, 2022 compared to approximately  $4.5 million  for the same period
in 2021 , an increase of approximately  $0.2 million , or 4% . The increase in
mortgage interest expense relates to the increase mortgage debt on our
commercial properties and model homes.  During March and April 2022, we added
approximately $9.3 million in mortgage debt related to our Baltimore and
Mandolin properties and had a net increase in mortgage debt on our model home of
approximately $2.6 million, in connection with model home sales and
acquisitions.  The weighted average interest rate on our outstanding debt was
4.57%  and 4.25% as of December 31, 2022 and 2021 , respectively.



Interest Expense-note payable. On September 17, 2019, the Company executed a
Promissory Note pursuant to which Polar, extended a loan in the principal amount
of approximately $14.0 million to the Company. The Polar Note bore interest at a
fixed rate of 8% per annum and required monthly interest-only payments. Interest
expense, including amortization of the deferred offering costs and Original
Issue Discount of approximately $1.4 million, totaled approximately $0.3 million
for the year ended December 31, 2021.  The Polar Note was paid in full during
March 2021, and no similar expenses were recorded during the year ended December
31, 2022.



Gain on Sale of Real Estate Assets. For the year ended December 31, 2022, the
change in gain on sale relates to the mix and type of properties sold. See Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Significant Transactions in 2022 and 2021 above for further detail.



Gain on Extinguishment of Government Debt. On April 30, 2020, the Company
received a Paycheck Protection Program ("PPP") loan of approximately $0.5
million from the Small Business Administration ("SBA") which provided additional
economic relief during the COVID-19 pandemic. The PPP loan, less $10,000 related
to the Economic Injury Disaster Loan ("EIDL") received on April 22, 2020,
was forgiven by the SBA as of December 31, 2020 and was fully forgiven in
January 2021 upon repeal of the EIDL holdback requirements. The gain on
extinguishment of government debt totaled $0 and $10,000 for the years
end December 31, 2022 and 2021, respectively.



Income Tax Expense / Credit. For the year ended December 31, 2022, the Company
recorded an expense of approximately $1.2 million related to estimated refunds
from federal and state taxes for capital gains from the sale of model homes held
by the taxable REIT subsidiary compared to a recorded an income tax credit of
approximately $47,620, for the year ended December 31, 2021.



Income allocated to non-controlling interests. Income allocated to
non-controlling interests for the years ended December 31, 2022 and 2021 totaled
approximately $3.6 million, and $2.2 million, and was directly impacted by the
sale of 19 and 34 model homes during the years ended December 31, 2022 and 2021,
respectively, held by our Model Home Partnerships.

Geographic Diversification Tables

The following table shows a list of commercial properties owned by the Company
grouped by state and geographic region as of December 31, 2022:

                                                                                                                   Approximate % of
                                                           Aggregate      Approximate % of      Current Base       Aggregate Annual
State                              No. of Properties      Square Feet       Square Feet         Annual Rent              Rent
California                                          1          57,807                  7.0 %   $    1,217,582                   11.0 %
Colorado (1)                                        5         324,245                 39.4 %        5,476,502                   49.7 %
Maryland                                            1          31,752                  3.9 %          696,321                    6.3 %
North Dakota                                        4         397,203                 48.4 %        3,303,274                   30.0 %
Texas                                               1          10,500                  1.3 %          329,385                    3.0 %
Total                                              12         821,507                100.0 %   $   11,023,064                  100.0 %




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The following table shows a list of our Model Home properties by geographic
region as of December 31, 2022:

                                                                                                                  Approximate % of
                                                           Aggregate      Approximate % of     Current Base       Aggregate Annual
Geographic Region                  No. of Properties      Square Feet       Square Feet         Annual Rent             Rent
Midwest                                             2           6,153                  2.2 %   $      80,844                    2.7 %
Southeast                                           2           3,978                  1.4 %          78,492                    2.6 %
Southwest                                          88         268,749                 96.4 %       2,824,404                   94.7 %
Total                                              92         278,880                100.0 %   $   2,983,740                  100.0 %

LIQUIDITY AND CAPITAL RESOURCES

Overview



Our 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 from our model home lines of
credit, and the sale of equity or debt securities. Management believes that the
number of commercial real estate sales during 2021 (4 properties) and high level
of model home sales during 2022 (31 homes) and 2021 (44 homes), and resulting
cash generated thereby may not be indicative of our future strategic plans. 

We

intend to grow our portfolio with cash on hand and future equity sales.  Our
cash and restricted cash at December 31, 2022 was approximately $16.5 million.
Our 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. We also are actively 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.



Our short-term liquidity needs include paying our current operating costs,
satisfying the debt service requirements of our existing mortgages, completing
tenant improvements, paying leasing commissions, and funding dividends to
stockholders.  Future principal payments due on our mortgage notes
payables during 2023, total approximately $8.3 million, of which  $6.8
million is related to model home properties.  Management expects certain model
home and commercial properties will be sold, and that the underlying mortgage
notes will be paid off with sales proceeds, while other mortgage notes will be
refinanced as the Company has done in the past. Additional principal payments
will be made with cash flows from ongoing operations. On March 11, 2022, the
Company completed the sale of our property World Plaza, located in San
Bernardino, CA, for $10 million to an unrelated third party.  This property was
not encumbered by any debt and net cash proceeds will be used for future cash
needs.  On December 31, 2022, the lease for our largest tenant, Halliburton
Energy Services, Inc., expired.  Halliburton Energy Services, Inc. was located
in our Shea Center II property in Colorado, and made up approximately 8.57% of
our annual base as of December 31, 2022.  The tenant did not renew the lease and
we placed approximately $1.1 million in a reserve account with our lender to
cover future mortgage payments, if necessary.  Our management team is working to
fill the space as quickly as possible, and has filled approximately 20% of the
space in the first quarter of 2023.



On September 17, 2021, the Board of Directors authorized a stock repurchase
program of up to $10 million of outstanding shares of our Series A Common Stock,
which expired in September 2022. On September 15, 2022, the Board of Directors
authorized a stock repurchase program of up to $6.0 million of outstanding
shares of our Series A Common Stock and up to $4.0 million of our Series D
Preferred Stock.  During the year ended December 31, 2021, the Company
repurchased 29,721 shares of our Series A Common Stock at an average price of
approximately $3.7223 per share, including a commission of $0.035 per share, for
a total cost of $110,631.  During the year ended December 31, 2022, the Company
repurchased 196,631 shares of our Series A Common Stock at an average price of
approximately $1.59 per share, including a commission of $0.035 per share, and
6,013 shares of our Series D Preferred Stock at an average price of
approximately $20.31 per share, including a commission of $0.035 per share, for
a total cost of $313,578 for the Series A Common Stock and $122,141 for the
Series D Preferred Stock. The repurchased shares will be treated as authorized
and unissued in accordance with Maryland law and shown as a reduction of
stockholders' equity at cost.  While we will continue to pursue value creating
investments, the Board of Directors believes there is significant embedded value
in our assets that is yet to be realized by the market. Therefore, returning
capital to stockholders through a repurchase program is an attractive use of
capital currently.



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There can be no assurance that the Company will refinance loans, take
out additional financing or capital 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 or certain discretionary spending, which could have a material
adverse effect on the Company's ability to achieve its intended business
objectives. We believe that cash on hand, cash flow from our existing portfolio,
distributions from joint ventures in Model Home Partnerships and property sales
during 2022 will be sufficient to fund our operating costs, planned capital
expenditures and required dividends for at least the next twelve months. If our
cash flow from operating activities is not sufficient to fund our short-term
liquidity needs, we plan to fund a portion of these needs from additional
borrowings of secured or unsecured indebtedness, from real estate sales,
issuance of debt instruments, additional investors, or we may reduce the rate of
dividends to our stockholders.



Our long-term liquidity needs include proceeds necessary to grow and maintain
our portfolio of investments. We believe that the potential financing capital
available to us in the future is sufficient to fund our long-term liquidity
needs. We are continually reviewing our existing portfolio to determine which
properties have met our short- and long-term goals and reinvesting the proceeds
in properties with better potential to increase performance. We expect to obtain
additional cash in connection with refinancing of maturing mortgages and
assumption of existing debt collateralized by some or all of our real property
in the future to meet our long-term liquidity needs. If we are unable to arrange
a line of credit, borrow on properties, privately place securities or sell
securities to the public we may not be able to acquire additional properties to
meet our long-term objectives.



The following is a summary of distributions declared per share of our Series A
Common Stock and for our Series D Preferred Stock for the years ended December
31, 2022 and 2021.  The Company intends to continue to pay dividends to our
common stockholders on a quarterly basis, and on a monthly basis for the Series
D Preferred stockholders going forward, but there can be no guarantee the Board
of Directors will approve any future dividends.





Quarter Ended             2022                         2021
                 Distributions Declared       Distributions Declared
March 31        $                  0.105     $                  0.101
June 30                            0.106                        0.102
September 30                       0.020                        0.103
December 31                        0.021                        0.104
Total           $                  0.252     $                  0.410








Month                   2022                         2021
               Distributions Declared       Distributions Declared
January       $                0.19531     $                      -
February                       0.19531                            -
March                          0.19531                            -
April                          0.19531                            -
May                            0.19531                            -
June                           0.19531                      0.10417
July                           0.19531                      0.19531
August                         0.19531                      0.19531
September                      0.19531                      0.19531
October                        0.19531                      0.19531
November                       0.19531                      0.19531
December 31                    0.19531                      0.19531
Total         $                2.34372     $                1.27603








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Cash, Cash Equivalents and Restricted Cash

At December 31, 2022 and December 31, 2021, we had approximately $16.5 million
and $14.7 million in cash equivalents, respectively, including $4.4 million
and $4.7 million of restricted cash, respectively. Our cash equivalents and
restricted cash consist of invested cash, cash in our operating accounts and
cash held in bank accounts at third-party institutions. During the years
ended December 31, 2022 and 2021, we did not experience any loss or lack of
access to our cash or cash equivalents. Approximately $4.1 million of our cash
and restricted cash balance is intended for capital expenditures on existing
properties (including deposits held in reserve accounts by our lenders) over the
next 12 months of 2023. This includes approximately $3.2 million related to
tenant improvements and building improvements for a long-term lease agreement
with KLJ Engineering LLC to occupy 33,296 square feet at our Grand Pacific
Center office building in Bismarck, North Dakota.  We plan on financing
a portion of the Bismark construction costs with a new loan that will also
refinance the existing mortgage on the property. We intend to use the remainder
of our existing cash and cash equivalents for asset/property acquisitions,
reduction of principal debt, general corporate purposes, common stock
repurchases (if market conditions are met),or dividends to our stockholders and
sponsorship of Murphy Canyon Acquisition Corp.



Secured Debt



As of December 31, 2022, all our commercial properties, except 300 NP which has
no debt, had fixed-rate mortgage notes payable in the aggregate principal amount
of $73.0 million, collateralized by a total of 11 commercial properties with
loan terms at issuance ranging from 7 to 22 years. The weighted-average interest
rate on these mortgage notes payable as of December 31, 2022 was approximately
4.53%, and our debt to estimated market value for our commercial properties was
approximately 54.3%.



As of December 31, 2022, the Company had fixed-rate mortgage notes payable
related to model homes in the aggregate principal amount of $24.8 million,
excluding loans eliminated through consolidation, collateralized by a total of
86 Model Homes and five intercompany loans from the Company to our Model Home
entities, Dubose Model Home Investors #202, LP and Dubose Model Home Investors
#204, LP. The intercompany loans are fully eliminated in consolidation.  These
loans generally have a term at issuance of three to five years. As of December
31, 2022, the average loan balance per home outstanding and the weighted-average
interest rate on these mortgage loans are approximately $288,000 and
4.69%, respectively. Our debt to estimated market value on all our model home
properties is approximately 58%, excluding any loans eliminated through
consolidation. We have been able to refinance maturing mortgages to extend
maturity dates and we have not experienced any notable difficulties financing
our acquisitions.  The Company anticipates that any new mortgages used to
acquire commercial properties or model homes in the near future will be at rates
higher than our currently weighted average interest rate.

Cash Flows for the years ended December 31, 2022 and December 31, 2021

Operating Activities: Net cash provided by operating activities for the years
ended December 31, 2022 and 2021 decreased by $1.4 million to approximately $0.9
million from $2.4 million. The change in net cash provided in operating
activities is mainly due to changes in net income, including operating
activities of the SPAC, which fluctuates based on timing of receipt and payment,
as well as an increase in non-cash addbacks such as straight-line rent.



Investing Activities: Net cash used in investing activities for the year ended
December 31, 2022 was approximately $126.4 million compared to
approximately $24.2 million provided by investing activities during the same
period in 2021. The change from each period was primarily related to the gross
cash invested into the trust account for Murphy Canyon totaling approximately
$134.9 million.  Additionally, proceeds from sale of real estate, net, were down
approximately $23.8 million in 2022, as compared to 2021, and proceeds used for
real estate acquisition and building improvements were down approximately
$6.0 million.



We currently project that we could spend up to $4.1 million (some of which is
held in deposits reserve accounts by our lenders) on capital improvements,
tenant improvements and leasing costs for properties within our portfolio during
the rest of the year. Capital expenditures may fluctuate in any given period
subject to the nature, extent, and timing of improvements required to the
properties. We may spend more on capital expenditures in the future due to
rising construction costs. Tenant improvements and leasing costs may also
fluctuate in any given year depending upon factors such as the property, the
term of the lease, the type of lease, the involvement of external leasing agents
and overall market conditions.



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Financing Activities: Net cash provided by financing activities during the year
ended December 31, 2022 was $127.3 million compared to $23.4 million used in
financing activities for the same period in 2021 and was primarily due to the
following activities for the year ended December 31, 2022:

• Proceeds of approximately $132.3 million from public issuance for Murphy

    Canyon common stock during the year ended December 31, 2022.

  • Net decrease in repayment of mortgage notes payable and notes payable
    totaling approximately $38.8 million.

• Net increase in proceeds from mortgage notes payable totaling approximately

    $8.6 million.

  • A net decrease of dividends paid to Series A Common stockholders of
    approximately $1.4 million.

• A net decrease of distributions to noncontrolling interest of approximately

    $3.2 million.

These increases to cash provided by financing activities were offset by the
following:

Net increase of payment of deferred offering costs totaling approximately

• $2.6 million, mainly related to offering costs for Murphy Canyon of $3.2

million.

The issuance of Series A Common Stock and Series D Preferred Stock totaling

• approximately $8.9 million and $20.5 million, respectively during 2021 which

was not repeated during 2022.

• The increase in cash used to repurchase Series A Common Stock and Series D

Preferred stock increased approximately $0.3 million.

Net increase in cash dividend payments to Series D Preferred Stockholders of

• approximately $1.2 million (the Series D Preferred Stock dividends began in

    June 2021).

Off-Balance Sheet Arrangements

On July 12, 2021, the Company entered into a securities purchase agreement with
a single U.S. institutional investor for the purchase and sale of 1,000,000
shares of its Series A Common Stock, Common Stock Warrants to purchase up to
2,000,000 shares of Series A Common Stock and Pre-Funded Warrants to purchase up
to 1,000,000 shares of Series A Common Stock. Each share of Common Stock and
accompanying Common Stock Warrants were sold together at a combined offering
price of $5.00, and each share of Common Stock and accompanying Pre-Funded
Warrant 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 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.



Common Stock Warrants: If all the potential Common Stock Warrants outstanding at
December 31, 2022, were exercised at the price of $5.00 per share, gross
proceeds to us would be approximately $10 million and we would as a result issue
an additional 2,000,000 shares of common stock.

Placement Agent Warrants: If all the potential Placement Agent Warrants
outstanding at December 31, 2022, were exercised at the price of $6.25 per
share, gross proceeds to us would be approximately $0.5 million and we would as
a result issue an additional 80,000 shares of common stock.

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January 14, 2022 was the record date with respect to the distribution of
five-year listed warrants (the "Series A Warrants").  The Series A Warrants and
the shares of 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 shares of common stock and existing
outstanding warrants as of the January 14, 2022 record date, or who acquired
shares of 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.

Series A Warrants: If all the potential Series A Warrants outstanding at
December 31, 2022, were exercised at the price of $7.00 per share, gross
proceeds to us would be approximately $101.2 million and we would as a result
issue an additional 14,450,069 shares of common stock.

Inflation



Leases generally provide for limited increases in rent as a result of fixed
increases, increases in the consumer price index (typically subject to
ceilings), or increases in the clients' sales volumes. We expect that inflation
will cause these lease provisions to result in rent increases over time. During
times when inflation is greater than increases in rent, as provided for in the
leases, rent increases may not keep up with the rate of inflation.



However, our use of net lease agreements tends to reduce our exposure to rising
property expenses due to inflation because the client is responsible for
property expenses. Inflation and increased costs may have an adverse impact on
our clients if increases in their operating expenses exceed increases in
revenue.

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