Discontinued Operations

6 Months Ended

Jun. 30, 2017

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

On April 6, 2017, the Company completed a reverse acquisition (Note 4) and changed the focus of the business as the Company is no longer pursuing to be a REIT. The assets and liabilities related to the REIT business have been presented as held for discontinued operations following the approval of management to sell the assets and liabilities.

i. Current assets of disposal group classified as held for discontinued operations

	2017 $	2016 $
Accounts receivable	16,064	2,406
Other assets	242,199	209,152
Total	258,263	211,558

ii. Non-current assets of disposal group classified as held for discontinued operations

	2017 $	2016 $
Land	6,018,891	6,736,848
Building and improvements, net	3,933,203	4,390,398
Equipment, net	2,887	4,592
Total	9,954,981	11,131,838

iii. Current liabilities of disposal group classified as held for discontinued operations

	2017 $	2016 $
Accounts payable and accrued liabilities	106,652	119,291
Due to related parties	45,621	7,164
Note payable – related parties	71,144	74,307
Prepaid rent received	18,311	13,048
Note payable	118,069	386,656
Total	359,797	600,466

iv. Non-current liabilities of disposal group classified as held for discontinued operations

	2017 $	2016 $
Note payable	2,756,380	4,690,077
Total	2,756,380	4,690,077

Analysis of the result of discontinued operations, and the result on the re-measurement of assets is as follows:

	For the Three Months Ended June 30, 2017 $	For the Three Months Ended June 30, 2016 $	April 6, 2017 through June 30, 2017 $	January 1, 2017 through April 6, 2017 $	For the Six Months Ended June 30, 2016 $
	Successor	Predecessor	Successor	Predecessor	Predecessor
Revenue	148,286	165,615	148,286	170,819	327,515
Expenses
Depreciation	31,431	37,813	31,431	44,548	65,395
General and administrative	537,890	1,542,538	537,890	421,434	2,237,175
Interest expense	67,232	130,218	67,232	78,371	195,488
Total expenses	636,553	1,710,569	636,553	544,353	2,498,058
Other income (expense)
Loss (gain) on sale of properties	67,167	–	67,167	(269,521)	(4,981)
Impairment of real estate properties	–	–	–	37,071	–
Net loss before other income from discontinued operations	(555,434)	(1,544,954)	(555,434)	(141,084)	(2,165,562)
Other income
Impairment of real estate properties	(127,902)	–	(127,902)	–	–
Net loss from discontinued operations	(683,336)	(1,544,954)	(683,336)	(141,084)	(2,165,562)

Cash flows:

	For the Three Months Ended June 30, 2017	For the Three Months Ended March 31, 2017	For the Six Months Ended June 30, 2016
	Successor	Predecessor	Predecessor
Operating activities
Net loss from discontinued operations	(683,336)	(141,084)	(2,165,562)
Items not affecting cash:
Depreciation	31,431	44,548	65,395
Loss (gain) on sale of assets	67,167	(269,521)	(4,981)
Impairment of real estate properties	127,902	37,071	–
Stock-based compensation	–	–	1,230,794
Write-off of accounts receivable	–	1,950	–
Changes in operating assets and liabilities:
Accounts receivable	(9,782)	(5,826)	(1,550)
Prepaid expenses	(73,192)	40,145	32,005
Accounts payable	(37,537)	(2,130)	(10,685)
Accrued liabilities	6,671	20,357	8,361
Prepaid rent received	4,317	946	(15,745)
Due to related parties	15,127	18,330	–
Net cash used in operating activities – discontinued operations	(551,232)	(255,214)	(861,968)

Investment in Real Estate

	June 30, 2017	December 31, 2016
Cost of real estate properties	$      10,524,592	$      11,603,385
Accumulated depreciation	(339,079)	(354,639)
Impairment of real estate properties	(233,419)	(121,500)
Balance at the end of the period	$        9,952,094	$      11,127,246

During the three months ended June 30, 2017, the Company sold ten properties for gross proceeds of $2,088,944 and recognized a loss on sale of $133,076. Of the $2,088,944 proceeds, $1,499,488 was used to settle debt associated with the properties.

During the three months ended June 30, 2017, the Company discovered that $267,841 of improvement costs for a property owned by the Manager of ARP were erroneously capitalized by and paid by the Company during the fiscal years 2014 – 2016 ($52,000 in 2014, $201,932 in 2015 and $13,909 in 2016). $65,909 of the $267,841 capitalized cost was related to a property the predecessor sold during the 3 months ended March 31, 2017. $186,932 of the $267,841 capitalized cost was related to another property that remains a property of the Company as at June 30, 2017. The error was corrected during the three months ended June 30, 2017 and the $267,841 capitalized during fiscal year 2014-2016 and $15,000 of depreciation expense were reversed. As one of the properties was already sold, the Company recorded a gain of $65,909 on sale of asset.

During the three months ended March 31, 2017, the predecessor recorded depreciation expense of $43,269 for its real estate properties. During the three months ended June 30, 2017, the Company recorded depreciation expense of $46,005 for its real estate properties. During the six months ended June 30, 2016, the predecessor recorded depreciation expense of $65,155 for its real estate properties.

During the three months ended March 31, 2017, the predecessor recorded impairment of $37,071 for its real estate properties. During the three months ended June 30, 2017, the Company recorded impairment of $127,902 for its real estate properties. During the six months ended June 30, 2016, no impairment was recorded for its real estate properties by the predecessor.

Prepaid Rent Received

	June 30, 2017	December 31, 2016
Balance, beginning of period	$           13,994	$           39,598
Prepaid rent recognized as revenue during the period	(57,372)	(160,559)
Prepaid rent received during the period	61,689	134,009
Balance, end of period	$           18,311	$           13,048

Related Party Transactions

a) On July 13, 2016, the Company entered into the Master UPREIT Formation Agreement resulting in the formation of AHIT NNMP, LLP, a Maryland limited liability company. Pursuant to the agreement, the Company agreed to retain the designee of the Limited Partner to serve as property manager during the period from the closing of the transaction to the exercise of the conversion option. In consideration for the property management services, the Limited Partner or its designee shall receive a property management fee equal to a mutually agreeable yearly fee based on a good faith analysis of net profits from the operation of the partnership for the year, but under no circumstances in excess of $120,000.

b) As of June 30, 2017, the Company is indebted to the former limited partner of AHIT Valfre, LLP for $136 (December 31, 2016 - $136), of repair expenses the limited partner paid on behalf of the Company.

c) As of June 30, 2017, the Company is indebted to the limited partner of AHIT NNMP, LLP for $45,484 (December 31, 2016 - $7,028), which represents $374 (December 31, 2016 - $4,211) of expenses owed to the limited partner, and $45,111 (December 31, 2016 - $11,239) of management fees owed to the limited partner.

d) On August 10, 2016, the Company assumed a note in the principal amount of $76,876 through the acquisition of the AHIT NNMP properties. The note is held by one of the partners of the limited partner of AHIT NNMP. The note bears interest at 4.50% and is due on June 1, 2026. As of June 30, 2017, the principal balance of the loan is $71,144 (December 31, 2016 - $74,307).

e) On July 15, 2016, the Company entered into a Consultancy Agreement with the Vice President of the Company for consulting services. The Consultancy Agreement is for a term of one year. In addition to a $30,000 signing bonus, the Company has agreed to issue 25,000 restricted shares as compensation and bi-weekly monetary compensation that is on par with the value of the services provided by the Vice President. On July 20, 2016, the Company issued the 25,000 shares of common stock with a fair value of $75,000 to the Vice President of the Company.

f) On July 15, 2016, the Company entered into a Board Director Agreement whereby the Company has agreed to issue 10,000 restricted shares of common stock as compensation. In addition to the 10,000 shares of common stock, the Company has agreed to pay the Director from time to time monetary and equity compensation for the services. As at June 30, 2017, the Company has not issued the 10,000 shares.

g) On July 21, 2016, the Company entered into a Board Director Agreement whereby the Company has agreed to issue 10,000 restricted shares of common stock as compensation. In addition to the 10,000 shares of common stock, the Company has agreed to pay the Director from time to time monetary and equity compensation for the services. On October 31, 2016, the Company issued the 10,000 shares of common stock with a fair value of $30,000.

h) During the three months ended March 31, 2017, the predecessor paid commission of $31,575 to a company owned by the former CFO of the predecessor. During the three months ended June 30, 2017, the Company paid commission of $53,010 to a company owned by the director of the Company.

Notes Payable

	June 30, 2017 $	December 31, 2016 $
Mortgages payable on February 20, 2034, bearing interest at a variable rate, collateralized by a deed of trust on the real estate properties purchased with the loan	121,425	194,984
Promissory note payable on November 1, 2019, bearing interest at 5.371% per annum, collateralized by the real estate properties titled to ARP Borrower, LLC and 100% equity ownership in ARP Borrower, LLC. The note is also secured by the Company	305,573	1,628,276
Promissory note payable on December 1, 2020, bearing interest at 5.88% per annum, collateralized by the real estate properties titled to ARP Borrower II, LLC and 100% equity ownership in ARP Borrower II, LLC	576,349	956,815
Promissory note payable on May 27, 2017, bearing interest at 16% per annum, collateralized by a deed of trust on the real estate property purchased with the loan	–	180,000
Promissory note payable on July 8, 2017, bearing interest at 18% per annum initially and at 12% per annum after four months, collateralized by a deed of trust on the real estate property purchased with the loan	–	80,000
Promissory note payable on October 1, 2017, bearing interest at 16% per annum, collateralized by a deed of trust on the real estate properties titled to ARP	122,243	122,298
Promissory note payable on January 1, 2022, bearing interest at 10% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan	350,000	350,000
Mortgage payable on April 1, 2053, bearing interest at 2% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan	242,820	244,767
Promissory note payable on May 1, 2021, bearing interest at 6.07% per annum, collateralized by the real estate properties titled to AHIT Valfre, LLP and ARP Borrower, LLC	1,037,126	1,196,022
Mortgage payable on April 1, 2028, bearing interest at 2.985% per annum, collateralized by the real estate property purchased with the loan	118,913	123,571
	2,874,449	5,076,733
Note payable – related party, payable on June 1, 2026, bearing interest at 4.5% per annum, collateralized by a deed of trust on the real estate properties purchased with the loan	71,144	74,307
	2,945,593	5,151,040
Less: Current Portion of Note payable	(189,214)
	2,756,379

The following table schedules the principal payments on the notes payable for the next five years and thereafter as of June 30, 2017:

Year	Amount
2017	$      157,188
2018	72,778
2019	369,046
2020	588,589
2021	974,677
thereafter	783,315
Total	$   2,945,593

At June 30, 2017, the weighted-average interest rate on short-term borrowings outstanding was 14.42%. The average amount of short-term borrowings during the three months ended June 30, 2017 was $101,121. The average interest on short-term borrowings during the three months ended June 30, 2017 was $2,031.

Single Family Residence Acquisitions

As of June 30, 2017, the Company owns 37 residential properties and 1 commercial property. The estimated useful life of the buildings and improvements related to these assets is 27 years. The following table sets forth the metropolitan statistical area, metropolitan division, number of homes, aggregate net investment, and average investment for each home acquired.

MSA / Metro Division	Number of Homes	Aggregate Investment	Average Investment per Home
Arizona	26	$     7,060,046	$         271,540
California	3	1,767,323	589,108
New Mexico	7	1,448,828	206,975
Texas	2	248,396	124,198
Total and Weighted Average	38	$   10,524,593	$         276,963

The Company computes depreciation using the straight-line method over the estimated useful lives of 27 years for building cost. The Company makes this determination based on subjective assessments as to the useful lives of the Company’s properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in single family real estate.

Employment Agreements

On April 15, 2016, the Company entered into employment agreements with two individuals for a term of one year. The Company agreed to issue an aggregate of 200,000 restricted shares as compensation and weekly monetary compensation that is on par with the value of the services provided by the consultants. On July 20, 2016 and July 26, 2016, the Company issued an aggregate of 200,000 shares to the consultants.

On July 15, 2016, the Company entered into an employment agreement with the Vice President of the Company for a term of one year. The Company agreed to issue 25,000 restricted shares as compensation and bi-weekly monetary compensation that is on par with the value of the services provided by the Vice President of the Company. In addition, the Company agreed to pay the Vice President a signing bonus of $30,000. On July 20, 2016, the Company issued 25,000 shares to the Vice President of the Company.

On December 8, 2016, the Company entered into an employment agreement with its Property Manager for an initial term of six months (“Probation Period”). During the Probation Period, the compensation is to be determined solely by the Company exercising its sole discretion. Following the Probation Period, the Company shall pay the Property Manager compensation equal to 5% of gross rental income from the Company’s tenants.

Lease Agreements

The Company rents properties under non-cancellable lease agreements with a term of one year. Future minimum rental revenues under leases existing on our properties at June 30, 2017 through the end of their term, are as follows:

Fiscal Year 2017	$    88,212
Fiscal Year 2018	35,270
Fiscal Year 2019	8,413
Total	$    131,895