Real Estate Investments

12 Months Ended

Dec. 31, 2021

(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 lease for the Best Buy store was extended to end on January 19, 2023.

The Company's properties are commercial, single-tenant buildings. The building in Wichita, Kansas was constructed in 1996, renovated in 2001 and acquired in 2006. The Cellualar Connection store was constructed and acquired in 2007. The Best Buy store was constructed in 1990, renovated in 1997 and acquired 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, except for $30,000 of tenant improvements related to the Cellular Connection store.

The cost of the properties not held for sale and related accumulated depreciation at December 31, 2021 are as follows:


Property	Land		Buildings		Total		Accumulated Depreciation

Biomat USA, Wichita, KS	$	507,489	$	1,277,436	$	1,784,925	$	861,997
Cellular Connection, Bluffton, IN		344,008		836,108		1,180,116		486,696
Best Buy, Eau Claire, WI		803,535		2,158,403		2,961,938		923,330
Fresenius Medical Center, Chicago, IL		464,400		665,142		1,129,542		186,230
Zales, Enid, OK		440,000		903,630		1,343,630		245,479
	$	2,559,432	$	5,840,719	$	8,400,151	$	2,703,732

For the years ended December 31, 2021 and 2020, the Company recognized depreciation expense of $281,594 and $295,860, respectively.

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


		2021				2020
		Cost		Accumulated Amortization		Cost		Accumulated Amortization
In-Place Lease Intangibles (weighted average life of 43 and 55 months, respectively)	$	502,569	$	321,955	$	735,546	$	382,390

Above-Market Lease Intangibles (weighted average life of 34 and 46 months, respectively)		72,606		51,138		72,606		43,562
Acquired Intangible Lease Assets	$	575,175	$	373,093	$	808,152	$	425,952

Acquired Below-Market Lease Intangibles (weighted average life of 0 and 57 months, respectively)	$	0	$	0	$	283,495	$	142,988

For the years ended December 31, 2021 and 2020, the value of in-place lease intangibles amortized to expense was $79,358 and $114,144, the decrease to rental income for above-market leases was $7,576 and $7,576, and the increase to rental income for below-market leases was $27,119 and $29,584, respectively.

For lease intangibles not held for sale at December 31, 2021, the estimated amortization for the next five years is as follows:


	Amortization Expense for In-Place Lease Intangibles		Decrease to Rental Income for Above-Market Leases		Increase to Rental Income for Below-Market Leases

2022	$	57,072	$	7,576	$	0
2023		39,404		7,576		0
2024		34,594		6,316		0
2025		18,620		0		0
2026		18,620		0		0
	$	168,310	$	21,468	$	0

The Company owns a 40% interest in a former Sports Authority store in Wichita, Kansas. On March 2, 2016, the tenant, TSA Stores, Inc., and its parent company, The Sports Authority, Inc., the guarantor of the lease, filed for Chapter 11 bankruptcy reorganization. In June 2016, the tenant filed a motion with the bankruptcy court to reject the lease for this store effective June 30, 2016, at which time the tenant returned possession of the property to the owners. As of December 31, 2020, the tenant owed $19,366 of past due rent, which was not recorded for financial reporting purposes. On March 23, 2021, a motion to dismiss the bankruptcy case was issued by a federal judge to The Sports Authority, Inc., the Company will therefore not be receiving any of the past due rent. The owners listed the property for lease with a real estate broker in the Wichita area. While the property was vacant, the Company was responsible for its 40% share of real estate taxes and other costs associated with maintaining the property.

On September 21, 2017, the Company entered into a lease agreement with a primary term of 10 years with Biomat USA, Inc. (“Biomat”) as a replacement tenant for 28% of the square footage of the property. The tenant operates a Biomat USA Plasma Center in the space. The Company’s 40% share of annual rent, which commenced on June 18, 2018, is $37,071. Biomat agreed to pay for the costs to divide the building into two separate spaces, the costs of tenant improvements to remodel the Biomat space and 28% of the cost to replace the roof.

On August 27, 2019, the Company entered into a lease agreement with a primary term of 10 years with BigTime Fun Center, LLC as a replacement tenant for 57% of the square footage of the property. The tenant will operate an indoor sports entertainment center in the space. The Company’s 40% share of annual rent, which was to commence on February 23, 2020, is $78,000. As part of the agreement, the Company was to pay a tenant improvement allowance of $64,000 when certain conditions are met by the tenant. Due to ongoing difficulties relating to the COVID-19 pandemic the Company was negotiating a rent commencement date of April 1, 2021. As a part of the negotiations, the tenant improvement allowance was to be replaced with a ten month rent abatement starting April 1, 2021. Additionally, this agreement would forebear rent and additional charges for the period from February 23, 2020 to March 31, 2021. In September 2019, the Company paid $32,760 to a real estate broker for its 40% share of the lease commission due as part of the lease transaction. This amount was capitalized and will be amortized over the term of the lease. On January 22, 2021 the owner of Big Time Fun Center, LLC informed the Company that it does not intend to open the Wichita property. As a result of the tenant informing the Company of their intention not to open, the full amount of the lease commission was amortized in the fourth quarter of 2020. The property is currently being marketed for sale or lease with a real estate broker in the Wichita area.

The Company owned a 55% interest in an Advance Auto Parts store in Middletown, Ohio. The remaining interest in the property was owned by an affiliate of the Company. On July 31, 2019, the lease term ended, and the tenant returned possession of the property to the owners. While the property was vacant, the Company was responsible for its 55% share of real estate taxes and other costs associated with maintaining the property. The owners listed the property for sale or lease with a real estate broker in the Middletown area, and the property was sold to an unaffiliated third party on June 29, 2021. The annual rent from this property represented approximately 11% of the total annual rent of the Company’s property portfolio. The loss of rent and increased expenses related to this property decreased the Company’s cash flow.

Based on its long-lived asset valuation analysis in the fourth quarter of 2020, the Company determined the Advance Auto store was impaired and recognized an additional real estate impairment of $78,376 to decrease the carrying value to the estimated fair value of $82,500. The charge was recorded against the cost of the land and building.

In April 2021, the Company entered into an agreement to sell its 55% interest in the Advance Auto Parts store in Middletown, Ohio to an unrelated third party. On June 29, 2021, the sale closed with the Company receiving net proceeds of $99,069, which resulted in a gain of $18,606. At the time of sale, the cost and related accumulated depreciation and amortization was $576,598 and $496,135, respectively.

In November 2021, the Company entered into an agreement to sell its Dollar Tree store in West Point, Mississippi to an unrelated third party. On December 10, 2021, the sale closed with the Company receiving net proceeds of $1,597,785, which resulted in a gain of $338,872. At the time of the sale, the cost and related accumulated depreciation and amortization was $1,535,714 and $276,801, respectively.

In March 2022, the Company entered into an agreement to sell its Zales store in Enid, Oklahoma to an unrelated third party. The sale is subject to contingencies and may not be completed. If the sale is completed, the Company expects to receive net proceeds of approximately $1,609,000, which will result in a net gain of approximately $451,000.

For properties owned as of December 31, 2021, the minimum future rent payments required by the leases are as follows:

2022	$	538,229
2023		283,350
2024		244,622
2025		150,591
2026		153,429
Thereafter		93,372
	$	1,463,593

There were no contingent rents recognized in 2021 and 2020.