ACQUISITIONS AND HELD FOR SALE

9 Months Ended

Mar. 31, 2023

ACQUISITIONS AND HELD FOR SALE [Abstract]

NOTE 5 – ACQUISITIONS AND HELD FOR SALE

Acquisition of General Partnership Interests

As discussed in Note 1, on May 6, 2022, the Operating Partnership purchased 100% of the membership interests in the eight Management Companies that own the general partnership interests in eight limited partnerships, each of which own a Class A or B office property in Napa, Fairfield, Suisun City or Woodland, California. Each Management Company is the sole general partner of each of the limited partnerships as disclosed in the following table:

General Partnership Interests	Management Companies	Total Purchase Price
1300 Main, LP	1300 Main, LLC	$	1,688,000
First & Main, LP	First & Main, LLC		2,237,000
Green Valley Medical Center, LP	Green Valley Medical Center, LLC		3,010,000
Main Street West, LP	Main Street West, LLC		4,708,000
Martin Plaza Associates, LP	Martin Plaza, LLC		725,000
One Harbor Center, LP	One Harbor Center, LLC		4,162,000
Westside Professional Center I, LP	Westside Professional Center, LLC		1,803,000
Woodland Corporate Center Two, LP	Woodland Corporate Center, LLC		-
Total		$	18,333,000

The acquisition of general partnership interests was made in exchange for cash, preferred units in the Operating Partnership, and, in some cases, a contingent liability as shown below:

General Partnership Interests	Number of Preferred Units issued		Amount of Preferred Units issued		Cash Payments		Contingent liability		Total Purchase Price
1300 Main, LP		-	$	-	$	1,688,000	$	-	$	1,688,000
First & Main, LP		99,422.22		2,237,000		-		-		2,237,000
Green Valley Medical Center, LP		-		-		2,410,000		600,000		3,010,000
Main Street West, LP		-		-		3,850,000		858,000		4,708,000
Martin Plaza Associates, LP		26,977.78		607,000		-		118,000		725,000
One Harbor Center, LP		80,266.67		1,806,000		1,571,000		785,000		4,162,000
Westside Professional Center I, LP		-		-		1,449,000		354,000		1,803,000
Woodland Corporate Center Two, LP		-		-		-		-		-
Total		206,666.67	$	4,650,000	$	10,968,000	$	2,715,000	$	18,333,000

The Operating Partnership’s preferred units are issued with a $25 liquidation preference, but because Wiseman agreed to a 4-year “lock-up” we agreed to a discounted issuance price of $22.50 per unit.

As discussed in Note 1, in July 2022, in addition to the general partnership interest, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in First & Main for total purchase price of $3,376,322, of which $2,711,378 was paid through issuance of 120,505.66 Preferred Units of the Operating Partnership. On October 1, 2022, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in 1300 Main for total purchase price of $6,480,582, all of which was paid in cash.

The Operating Partnership completed the acquisition of 100% of the limited partnership interests in Woodland Corporate Center Two on January 3, 2023 for a total purchase price of $5,636,966, of which $3,242,557 was paid through the issuance of 144,113.63 Preferred Units of the Operating Partnership. The Operating Partnership completed the acquisition of 100% of the limited partnership interests in Main Street West on February 1, 2023 for a total purchase price of $8,277,016, all of which were paid in cash.

Contingent Consideration

As discussed in our June 30, 2022 consolidated financial statements, pursuant to the membership interest purchase agreement, the purchase price paid at closing for the general partnership interests was reduced by 20% as of the closing date for the property companies that had not received fully executed and in force leases, the annualized scheduled rents of which are equal to or greater than the target scheduled rent as stated in the membership interest purchase agreement. This 20% holdback will be paid upon a property company reaching the stabilization threshold, reduced by stabilization costs, as defined in the membership interest purchase agreement. Management believes that it is probable that the stabilization thresholds will be reached for each of the property companies that did not meet this threshold at the acquisition date. Hence, the 20% holdback in the amount of $2,715,000 was recorded as a contingent liability as of the acquisition date. During the nine months ended March 31, 2023, we paid $1,154,125 of the total contingent liability. In addition, we reduced the contingent liability by $57,875, which was deemed not payable as of March 31, 2023. As of March 31, 2023 and June 30, 2022, contingent liability amounted to $1,503,000 and $2,715,000, respectively.

Debt Guaranty

The property companies have mortgage loans with various banks and the loans are guaranteed by Wiseman and its owner, Doyle Wiseman and his trust. The mortgage loans of 1300 Main, LP, One Harbor Center, LP, Martin Plaza Associates, LP, and Main Street West, LP are also guaranteed by the partnership’s general partner as the co-guarantor.

On July 1, 2022, subsequent to Operating Partnership’s acquisition of the management companies, Wiseman’s owner, Doyle Wiseman and the Operating Partnership entered into an indemnity agreement whereby the Operating Partnership will indemnify Doyle Wiseman for any losses suffered by him through the default of a limited partnership on the mortgage secured by the property owned by the limited partnership. Historically, none of the limited partnerships has had any defaults on any mortgages and Doyle Wiseman has not had to satisfy any mortgage default through a guaranty. Furthermore, each of the limited partnerships is adequately capitalized, has sufficient cash flow from operations to service the mortgage notes and has not required Doyle Wiseman to provide any subordinated financial support to the limited partnerships. Therefore, we have not recorded any liability related to the guaranty on the mortgage loans as of March 31, 2023.

Assets and Liabilities Held for Sale

On June 28, 2022, the Addison Property Owner entered into a forbearance agreement for the sale of Addison Corporate Center with the lender of the note payable discussed in Note 10. As a result, the Addison Property Owner’s operations met the criteria to be classified as held for sale, which requires us to present the related assets and liabilities as separate line items in our consolidated balance sheets. We recorded these assets and liabilities at fair value less any costs to sell. Therefore, we recorded an impairment loss allowance of $9,126,461 on assets held for sale as of June 30, 2022. Due to a decrease in estimated fair value of the property, which was based on the sale price less the estimated closing costs, we recorded an additional impairment loss allowance of $8,121,089 during the nine months ended March 31, 2023.

The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in our consolidated balance sheets:

	March 31, 2023			June 30, 2022

Assets
Real estate assets
Land	$	6,456,615		$	6,456,615
Building, fixtures and improvements		19,657,181			19,108,041
Intangible lease assets		5,225,719			5,154,568
Less: accumulated depreciation and amortization		(5,112,309	)		(5,112,309	)
Total real estate assets, net		26,227,206			25,606,915
Cash		534,757			505,186
Investments income, rents and other receivables		505,835			490,239
Due from related entities		-			401
Prepaid expenses and other assets		316,011			14,301
Allowance for impairment of assets held for sale		(17,247,550	)		(9,126,461	)
Total assets	$	10,336,259		$	17,490,581

Liabilities
Deferred rent and other liabilities	$	445,243		$	410,908
Accounts payable and accrued liabilities		1,204,029			334,081
Total liabilities	$	1,649,272		$	744,989

We determined that the operations included in the table above did not meet the criteria to be classified as discontinued operations under the applicable guidance.