Real Estate Investments

12 Months Ended

Dec. 31, 2015

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

(4)  Real Estate Investments –

The Company leases its properties to tenants under net leases, classified as operating leases.  Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property.  For some leases, the Company is responsible for repairs to the structural components of the building, the roof and the parking lot.  At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years.  The leases provide the tenants with three to four five-year renewal options subject to the same terms and conditions as the primary term.  

The Company's properties are commercial, single-tenant buildings. The Sports Authority store was constructed in 1996, renovated in 2001 and acquired in 2006.  The Advance Auto Parts store was constructed in 2004 and acquired in 2006.  The Applebee’s restaurant in Crawfordsville, Indiana was constructed in 1996 and acquired in 2006.  The Starbucks restaurant was constructed and acquired in 2007.  The Best Buy store was constructed in 1990, renovated in 1997 and acquired in 2008.  The land for the Dick’s Sporting Goods store was acquired in 2007 and construction of the store was completed in 2008.  The Fresenius Medical Center was constructed in 2012 and acquired in 2014.  The Zales store was constructed in 1983, renovated in 2014 and acquired in 2015.  There have been no costs capitalized as improvements subsequent to the acquisitions.

The cost of the properties not held for sale and related accumulated depreciation at December 31, 2015 are as follows:

Property	Land		Buildings		Total		Accumulated Depreciation
Sports Authority, Wichita, KS	$	507,489	$	1,277,436	$	1,784,925	$	594,925
Advance Auto Parts, Middletown, OH		112,315		909,974		1,022,289		348,824
Applebee’s, Crawfordsville, IN		337,353		900,418		1,237,771		324,153
Starbucks, Bluffton, IN		344,008		806,108		1,150,116		270,044
Best Buy, Eau Claire, WI		474,137		1,547,025		2,021,162		489,891
Dick’s Sporting Goods, Fredericksburg, VA		1,603,559		1,523,044		3,126,603		496,146
Fresenius Medical Center, Chicago, IL		464,400		665,142		1,129,542		26,606
Zales, Enid, OK		440,000		903,630		1,343,630		28,615
	$	4,283,261	$	8,532,777	$	12,816,038	$	2,579,204

For the years ended December 31, 2015 and 2014, the Company recognized depreciation expense of $351,914 and $392,333, respectively.

On December 30, 2014, the Company purchased a 54% interest in a Fresenius Medical Center in Chicago, Illinois for $1,292,220.  The Company allocated $162,678 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles.  The Company incurred $37,042 of acquisition expenses related to the purchase that were expensed.  The property is leased to Fresenius Medical Care Chatham, LLC, a subsidiary of Fresenius Medical Care Holdings, Inc., under a Lease Agreement with a remaining primary term of 12.3 years (as of the date of purchase) and annual rent of $87,228 for the interest purchased.

On March 17, 2015, the Company purchased a Zales store in Enid, Oklahoma for $1,600,000.  The Company allocated $256,370 of the purchase price to Acquired Intangible Lease Assets, representing in-place lease intangibles of $183,764 and above-market lease intangibles of $72,606.  The Company incurred $48,817 of acquisition expenses related to the purchase that were expensed.  The property is leased to Zale Delaware, Inc. under a Lease Agreement with a remaining primary term of 9.6 years and annual rent of $105,600.

On February 3, 2016, the Company purchased a Dollar Tree store in West Point, Mississippi for $1,535,714.  The property is leased to Dollar Tree Stores, Inc. under a Lease Agreement with a remaining primary term of 9.7 years and annual rent of $107,500.

The following schedule presents the cost and related accumulated amortization of acquired lease intangibles not held for sale at December 31:

		2015				2014
		Cost		Accumulated Amortization		Cost		Accumulated Amortization
In-Place Lease Intangibles (weighted average life of 120 and 146 months, respectively)	$	346,442	$	27,572	$	420,445	$	48,960
Above-Market Lease Intangibles (weighted average life of 106 and 0 months, respectively)		72,606		5,682		0		0
Acquired Intangible Lease Assets	$	419,048	$	33,254	$	420,445	$	48,960
Acquired Below-Market Lease Intangibles (weighted average life of 0 and 145 months, respectively)	$	0	$	0	$	92,542	$	17,578

For the years ended December 31, 2015 and 2014, the value of in-place lease intangibles amortized to expense was $27,572 and $17,280, the decrease to rental income for above-market leases was $5,682 and $0, and the increase to rental income for below-market leases was $0 and $6,204, respectively.  For lease intangibles not held for sale as of December 31, 2015, the estimated amortization expense is $32,365 and the estimated decrease to rental income for above-market leases is $7,576 for each of the next five succeeding years.

In November 2015, the Company entered into an agreement to sell its 40% interest in the Sports Authority store in Wichita, Kansas to an unrelated third party.  The sale is subject to contingencies, including a long due diligence period, and may not be completed.  If the sale is completed, the Company expects to receive net sale proceeds of approximately $1,190,000.  If the sale is not completed, the owners anticipate they will seek a new tenant for the property after the current tenant vacates the property.

On March 2, 2016, the tenant of the Sports Authority store, TSA Stores, Inc., and its parent company, The Sports Authority, Inc., the guarantor of the lease, filed for Chapter 11 bankruptcy reorganization.  The tenant has indicated that after conducting a closing sale over the next 30 to 90 days, the tenant will file a motion with the bankruptcy court to reject the lease and return possession of the property to the owners. When that occurs, the Company will become responsible for its 40% share of real estate taxes and other costs associated with maintaining the property until the property is sold.  The annual rent from this property represents approximately 19% of the total annual rent of the Fund’s property portfolio.  The loss of rent and increased expenses related to this property will decrease the Fund’s cash flow and may cause the Fund to reduce its distribution rate per Unit.  The bankruptcy filing by the tenant has no effect on the buyer’s interest in purchasing the property.

Based on its long-lived asset valuation analysis, the Company determined the Sports Authority store was impaired.  As a result, in the fourth quarter of 2015, a charge to operations for real estate impairment of $445,828 was recognized, which was the difference between the carrying value at December 31, 2015 of $1,635,828 and the estimated fair value of $1,190,000.  The charge was recorded against the cost of the land and building.

For properties owned as of December 31, 2015, the minimum future rent payments required by the leases are as follows:

2016	$	1,068,326
2017		822,553
2018		623,709
2019		373,839
2020		319,680
Thereafter		1,773,325
	$	4,981,432

There were no contingent rents recognized in 2015 and 2014.