NON-CONTROLLING INTEREST - OPERATING PARTNERSHIP

6 Months Ended

Jun. 30, 2016

Noncontrolling Interest [Abstract]

NON-CONTROLLING INTEREST - OPERATING PARTNERSHIP

4. NON-CONTROLLING INTEREST – OPERATING PARTNERSHIP

Holders of operating partnership units (“OP Units”) generally have the right to require the operating partnership to redeem their units for shares of the company’s common stock. Upon submittal of units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, currently on the basis of 1.647 shares for each unit submitted for redemption (the “Conversion Factor”), or (b) to pay cash for those units at their fair market value, based upon the then current trading price of the shares and using the same exchange ratio. Prior to December 29, 2015, we had an informal policy of issuing shares, in lieu of cash in exchange for units. On December 28, 2015, our Board formally adopted a policy whereby we shall only issue our common stock for redemption of units, rather than paying cash for such redemption in accordance with the operating partnership agreement. As a result of this change in policy, the company now requires the issuance of shares of common stock of the company in payment for the redemption of OP Units and therefore has effective control over the redemption and therefore the non-controlling interest is now being classified in permanent equity as of December 28, 2015 as opposed to temporary equity, and similarly at December 31, 2015 and June 30, 2016.

In July 2013, the operating partnership privately offered to investors who held both units of the operating partnership and shares of common stock the opportunity to contribute shares to the operating partnership in exchange for units (provided that the investors were “accredited investors” under SEC Rule 501 of Regulation D under the Securities Act of 1933, as amended). This opportunity remains open to those accredited investors. Consistent with the Conversion Factor noted above, the offering of units uses a “Contribution Factor” such that an accredited investor who contributes shares to the operating partnership will receive one unit for every 1.647 shares contributed.

The non-controlling interest of the unitholders in the operating partnership on the accompanying consolidated balance sheets is calculated by multiplying the non-controlling interest ownership percentage at the balance sheet date by the operating partnership’s net assets (total assets less total liabilities). The non-controlling interest ownership percentage is calculated at any point in time by dividing (x) (the number of units outstanding multiplied by 1.647) by (y) the total number of shares plus (the number of units outstanding multiplied by 1.647). The non-controlling interest ownership percentage will change as additional shares and/or units are issued or as units are redeemed for shares of the company’s common stock or as the company’s common stock is contributed to the operating partnership and units are issued in accordance with the Contribution Factor. The non-controlling interest of the unitholders in the income or loss of the operating partnership in the accompanying consolidated statements of operations is calculated based on the weighted average percentage of units outstanding during the period, which was 4.04% for the six months ended June 30, 2016 and 6.64% for the year ended December 31, 2015. There were 482,213 units outstanding as of June 30, 2016 and 553,625 units outstanding as of December 31, 2015. The equity balance of the non-controlling interest of the unitholders was $809,505 at June 30, 2016 and $1,026,751 at December 31, 2015. 

The following table details the components of non-controlling interest in the operating partnership as of December 31, 2015, which was classified as a liability through December 28, 2015:

	December 31, 2015
Beginning balance	$	3,468,972
Net loss attributable to non-controlling interest		(206,065	)
Redemptions of non-controlling partnership units		(3,285,713	)
Contribution of common shares for non-controlling partnership units		—
Adjustments to non-controlling interest in the operating partnership		1,054,968
Non-controlling interest liability balance at December 28, 2015		1,032,162
Transfer non-controlling interest from liability to equity		(1,032,162	)
Non-controlling interest liability - ending balance	$	—