Maryland | 38-3978914 |
(State of Organization) | (I.R.S. Employer Identification Number) |
2909 Hillcroft, Suite 420, Houston, Texas | 77057 |
(Address of principal executive offices) | (Zip Code) |
PART I FINANCIAL INFORMATION | ||
PART II OTHER INFORMATION | ||
HARTMAN vREIT XXI, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
March 31, 2018 | December 31, 2017 | ||||||
ASSETS | (Unaudited) | ||||||
Real estate assets, at cost | $ | 12,445,452 | $ | 7,260,560 | |||
Accumulated depreciation and amortization | (524,694 | ) | (402,855 | ) | |||
Real estate assets, net | 11,920,758 | 6,857,705 | |||||
Cash and cash equivalents | 3,081,844 | 2,431,740 | |||||
Investment in unconsolidated joint venture | 8,324,896 | 8,423,699 | |||||
Escrowed investor proceeds | 95,090 | 33,866 | |||||
Deferred lease commissions, net | 27,716 | 20,339 | |||||
Accrued rent and accounts receivable, net | 48,728 | 38,193 | |||||
Prepaid expenses and other assets | 92,500 | 212,910 | |||||
Due from related parties | 317,265 | 268,908 | |||||
Total assets | $ | 23,908,797 | $ | 18,287,360 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities: | |||||||
Notes payable, net | $ | 5,935,732 | $ | 3,480,295 | |||
Accounts payable and accrued expenses | 266,808 | 377,860 | |||||
Subscriptions for common stock | 95,085 | 33,861 | |||||
Tenants' security deposits | 97,858 | 52,208 | |||||
Total liabilities | 6,395,483 | 3,944,224 | |||||
Commitments and contingencies | |||||||
Special Limited Partnership Interests | 1,000 | 1,000 | |||||
Stockholders' equity: | |||||||
Common stock, Class A, $0.01 par value, 850,000,000 shares authorized, 2,167,821 and 1,776,683 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively. | 21,678 | 17,767 | |||||
Common stock, Class T, $0.01 par value, 50,000,000 shares authorized, 93,482 and 74,634 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively. | 935 | 746 | |||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively | — | — | |||||
Additional paid-in capital | 20,454,990 | 16,713,160 | |||||
Accumulated distributions and net loss | (2,965,289 | ) | (2,389,537 | ) | |||
Total stockholders' equity | 17,512,314 | 14,342,136 | |||||
Total liabilities and equity | $ | 23,908,797 | $ | 18,287,360 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
HARTMAN vREIT XXI, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Unaudited) | |||||||
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Revenues | |||||||
Rental revenues | $ | 212,580 | $ | 110,186 | |||
Tenant reimbursements and other revenues | 67,844 | 64,919 | |||||
Total revenues | 280,424 | 175,105 | |||||
Expenses | |||||||
Property operating expenses | 41,779 | 24,701 | |||||
Asset management fees | 15,048 | 10,575 | |||||
Organization and offering costs | 25,771 | — | |||||
Real estate taxes and insurance | 53,289 | 31,292 | |||||
Depreciation and amortization | 121,839 | 20,016 | |||||
General and administrative | 80,528 | 21,529 | |||||
Interest expense | 53,310 | 29,281 | |||||
Total expenses | 391,564 | 137,394 | |||||
(Loss) income from operations | (111,140 | ) | 37,711 | ||||
Equity in (losses) earnings of unconsolidated entities | (98,803 | ) | 8,399 | ||||
Net loss attributable to non-controlling interest | — | (5,400 | ) | ||||
Loss on re-measurement | — | (2,194 | ) | ||||
Net (loss) income attributable to vREIT XXI | $ | (209,943 | ) | $ | 38,516 | ||
(Loss) income per common share: | |||||||
Net income attributable to common stockholders | $ | (0.11 | ) | $ | 0.09 | ||
Weighted average number of common shares outstanding | 1,985,458 | 417,003 | |||||
The accompanying notes are an integral part of these consolidated financial statements. |
HARTMAN vREIT XXI, INC. AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | |||||||||||||
(Unaudited) | |||||||||||||
Class A and Class T Common Stock | |||||||||||||
Shares | Amount | Additional Paid-In Capital | Accumulated Distributions And Net Loss | Total | |||||||||
Balance at December 31, 2017 | 1,851,317 | $ | 18,513 | $ | 16,713,160 | $ | (2,389,537 | ) | $ | 14,342,136 | |||
Issuance of common shares | 409,986 | 4,100 | 3,977,373 | - | 3,981,473 | ||||||||
Selling commissions | - | - | (235,543 | ) | - | (235,543 | ) | ||||||
Dividends and distributions (stock based) | - | - | - | (107,039 | ) | (107,039 | ) | ||||||
Dividends and distributions (DRP based) | - | - | - | (97,932 | ) | (97,932 | ) | ||||||
Dividends and distributions (cash based) | - | - | - | (160,838 | ) | (160,838 | ) | ||||||
Net loss | - | - | - | (209,943 | ) | (209,943 | ) | ||||||
Balance at March 31, 2018 | 2,261,303 | $ | 22,613 | $ | 20,454,990 | $ | (2,965,289 | ) | $ | 17,512,314 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
HARTMAN vREIT XXI, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
Three months ended March 31, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (209,943 | ) | $ | 38,516 | ||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |||||||
Stock based compensation | 18,750 | — | |||||
Depreciation and amortization | 121,839 | 20,016 | |||||
Deferred loan cost amortization | 5,588 | 3,725 | |||||
Deferred leasing commission | 1,492 | — | |||||
Equity in losses (earnings) of unconsolidated entities | 98,803 | (8,399 | ) | ||||
Loss on re-measurement | — | 2,194 | |||||
Bad debt (recoveries) provision | (8,961 | ) | — | ||||
Changes in operating assets and liabilities: | |||||||
Accrued rent and accounts receivable | (1,574 | ) | (4,361 | ) | |||
Deferred leasing commissions | (8,869 | ) | — | ||||
Prepaid expenses and other assets | (29,590 | ) | (14,869 | ) | |||
Accounts payable and accrued expenses | (124,573 | ) | 71,801 | ||||
Due from related parties | (174,357 | ) | (207,269 | ) | |||
Tenants’ security deposits | 45,650 | — | |||||
Net cash used in operating activities | (265,745 | ) | (98,646 | ) | |||
Cash flows from investing activities: | |||||||
Additions to real estate | (4,908,892 | ) | — | ||||
Investment in formerly unconsolidated joint venture | — | (2,214,480 | ) | ||||
Net cash used in investing activities | (4,908,892 | ) | (2,214,480 | ) | |||
Cash flows from financing activities: | |||||||
Distributions paid in cash | (153,833 | ) | (26,621 | ) | |||
Payment of selling commissions | (235,543 | ) | (375,383 | ) | |||
Escrowed investor proceeds | (61,224 | ) | (15,426 | ) | |||
Subscriptions for common stock | 61,224 | 16,196 | |||||
Payment of deferred loan costs | (70,151 | ) | — | ||||
Term loan borrowings | 2,520,000 | — | |||||
Proceeds from issuance of common stock | 3,764,268 | 4,404,759 | |||||
Net cash provided by financing activities | 5,824,741 | 4,003,525 | |||||
Net change in cash and cash equivalents | 650,104 | 1,690,399 | |||||
Cash and cash equivalents at the beginning of period | 2,431,740 | 97,810 | |||||
Cash and cash equivalents at the end of period | $ | 3,081,844 | $ | 1,788,209 | |||
Supplemental cash flow information: | |||||||
Cash paid for interest | $ | 42,328 | $ | 19,414 | |||
Supplemental disclosures of non-cash investing and financing activities: | |||||||
Distributions payable | $ | 12,767 | $ | 15,174 | |||
Distributions paid in stock | $ | 192,204 | $ | 19,340 | |||
Village Pointe Assets/ Liabilities: | |||||||
Real estate | $ | — | $ | 7,050,000 | |||
Note payable, net | $ | — | $ | (3,459,805 | ) | ||
Net other assets and liabilities | $ | — | $ | 216,790 | |||
The accompanying notes are an integral part of these consolidated financial statements. |
Level 1: | Observable inputs such as quoted prices in active markets. |
Level 2: | Directly or indirectly observable inputs, other than quoted prices in active markets. |
Level 3: | Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions. |
Assets and liabilities measured at fair value are based on one or more of the following valuation techniques: | |
Market Approach: | Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
Cost Approach: | Amount required to replace the service capacity of an asset (replacement cost). |
Income Approach: | Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models). |
March 31, 2018 | December 31, 2017 | |||||
Land | $ | 3,022,500 | $ | 1,762,500 | ||
Buildings and improvements | 8,053,758 | 4,413,865 | ||||
In-place lease value intangible | 1,369,194 | 1,084,195 | ||||
12,445,452 | 7,260,560 | |||||
Less accumulated depreciation and amortization | (524,694 | ) | (402,855 | ) | ||
Total real estate assets | $ | 11,920,758 | $ | 6,857,705 |
March 31, 2018 | December 31, 2017 | |||||
In-place lease value intangible | $ | 1,369,194 | $ | 1,084,195 | ||
In-place leases – accumulated amortization | (365,170 | ) | (284,233 | ) | ||
Acquired in-place lease intangible assets, net | $ | 1,004,024 | $ | 799,962 |
Assets acquired: | |||
Real estate assets | $ | 5,040,000 | |
Accounts receivable and other assets | — | ||
Total assets | 5,040,000 | ||
Liabilities assumed: | |||
Security deposits | (45,650 | ) | |
Total liabilities assumed | (45,650 | ) | |
Fair value of net assets acquired | $ | 4,994,350 |
Assets acquired: | |||
Real estate assets | $ | 7,050,000 | |
Accounts receivable and other assets | 273,352 | ||
Total assets | 7,323,352 | ||
Liabilities assumed: | |||
Note payable | (3,459,805 | ) | |
Accounts payable and accrued expenses | (49,509 | ) | |
Security deposits | (52,208 | ) | |
Total liabilities assumed | (3,561,522 | ) | |
Fair value of net assets acquired | $ | 3,761,830 |
Total revenues | $ | 1,566,998 | |
Property operating expenses | 474,270 | ||
Real estate taxes and insurance | 260,420 | ||
Asset management fees | 66,853 | ||
Depreciation and amortization | 728,501 | ||
General and administrative | 20,630 | ||
Interest expense | 218,789 | ||
Total expenses | 1,769,463 | ||
Net loss from discontinued operations | $ | (202,465 | ) |
March 31, 2018 | December 31, 2017 | |||||
Tenant receivables | $ | 6,366 | $ | 13,779 | ||
Accrued rent | 46,158 | 37,171 | ||||
Allowance for uncollectible accounts | (3,796 | ) | (12,757 | ) | ||
Accrued rents and accounts receivable, net | $ | 48,728 | $ | 38,193 |
Collateral Property | Payment Type | Maturity Date | Rate | Principal Balance | ||
Village Pointe | Principal only | December 14, 2019 | 4.245% | $ | 3,525,000 | |
Richardson Tech Center | Principal only | March 14, 2021 | 4.526% | 2,520,000 | ||
6,045,000 | ||||||
Less unamortized loan costs | (109,268 | ) | ||||
$ | 5,935,732 |
Three months ended March 31, | |||||||
2018 | 2017 | ||||||
Numerator: | |||||||
Net (loss) income attributable to common stockholders | $ | (209,943 | ) | $ | 38,516 | ||
Denominator: | |||||||
Basic weighted average shares outstanding | 1,985,458 | 417,003 | |||||
Basic income per common share | $ | (0.11 | ) | $ | 0.09 |
Period | Cash | DRP & Stock | Total | ||||||
Period From inception to December 31, 2015 | $ | — | $ | — | $ | — | |||
First, second, third Quarters 2016 | — | — | — | ||||||
Fourth Quarter 2016 | 6,121 | 2,226 | 8,347 | ||||||
First Quarter 2017 | 35,853 | 34,514 | 70,367 | ||||||
Second Quarter 2017 | 71,216 | 87,168 | 158,384 | ||||||
Third Quarter 2017 | 105,245 | 130,776 | 236,021 | ||||||
Fourth Quarter 2017 | 154,145 | 176,470 | 330,615 | ||||||
First Quarter 2018 | 160,838 | 204,971 | 365,809 | ||||||
Total | $ | 533,418 | $ | 636,125 | $ | 1,169,543 |
• | our ability to raise capital in our ongoing initial public offering; |
• | our ability to effectively deploy the proceeds raised in our initial public offering; |
• | the imposition of federal taxes if we fail to qualify as a REIT in any taxable year or forego an opportunity to ensure REIT status; |
• | uncertainties related to the national economy, the real estate industry in general and in our specific markets; |
• | legislative or regulatory changes, including changes to laws governing REITS; |
• | construction costs that may exceed estimates or construction delays; |
• | increases in interest rates; |
• | availability of credit or significant disruption in the credit markets; |
• | litigation risks; |
• | risks inherent to the real estate business, including tenant defaults, potential liability related to environmental matters and the lack of liquidity of real estate investments; |
• | inability to obtain new tenants upon the expiration of existing leases at our properties; |
• | inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; |
• | the potential need to fund tenant improvements or other capital expenditures out of operating cash flow; |
• | conflicts of interest arising out of our relationship with our advisor and its affiliates; |
• | our ability to generate sufficient cash flows to pay distributions to our stockholders; |
• | our ability to retain our executive officers and other key personnel of our advisor and other affiliates of our advisor; and |
• | changes to generally accepted accounting principles, or GAAP. |
• | realize growth in the value of our investments; |
• | preserve, protect and return stockholders’ capital contributions; and |
• | grow net cash from operations and pay regular cash distributions to our stockholders. |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Net (loss) income | $ | (209,943 | ) | $ | 38,516 | |
Depreciation and amortization of real estate assets (1) | 477,355 | 20,016 | ||||
Funds from operations (FFO) | 267,412 | 58,532 | ||||
Organization and offering costs | 25,771 | - | ||||
Modified funds from operations (MFFO) | $ | 293,183 | $ | 58,532 |
(1) | Includes, for the three months ended March 31, 2018 and 2017, respectively, $355,516 and $0 depreciation attributable to the equity in loss of the Three Forest Property. |
Period | Cash (1) | DRP & Stock (2) | Total | ||||||
Period From inception to December 31, 2015 | $ | — | $ | — | $ | — | |||
First, second, third Quarters 2016 | — | — | — | ||||||
Fourth Quarter 2016 | 6,121 | 2,226 | 8,347 | ||||||
First Quarter 2017 | 35,853 | 34,514 | 70,367 | ||||||
Second Quarter 2017 | 71,216 | 87,168 | 158,384 | ||||||
Third Quarter 2017 | 105,245 | 130,776 | 236,021 | ||||||
Fourth Quarter 2017 | 154,145 | 176,470 | 330,615 | ||||||
First Quarter 2018 | 160,838 | 204,971 | 365,809 | ||||||
Total | $ | 533,418 | $ | 636,125 | $ | 1,169,543 |
(1) | Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 20 days following the end of such month. |
(2) | Amount of distributions paid in shares of common stock pursuant to our distribution reinvestment plan and stock dividend distribution. |
• | $3,764,268 and $4,404,759, respectively, of cash provided by offering proceeds related to our public offering, net of payments of commissions on sales of common stock and related dealer manager fees of $235,543 and $375,383, respectively; |
• | $2,449,849 and $770, respectively, of cash provided by borrowing under term loan and revolving credit agreements, net of repayments and deferred loan costs; and |
• | $153,833 and $26,621, respectively, of cash distributions. |
Contractual Obligations | Total | 2018 | 2019-2020 | 2021-2022 | Thereafter | ||||||||||
Long-term debt obligations (1) | $ | 6,045,000 | $ | — | $ | 3,525,000 | $ | 2,520,000 | $ | — | |||||
Interest payments on outstanding debt obligations (2) | 645,768 | 243,766 | 383,310 | 18,692 | — | ||||||||||
Purchase obligations (3) | — | — | — | — | — | ||||||||||
Total | $ | 6,690,768 | $ | 243,766 | $ | 3,908,310 | $ | 2,538,692 | $ | — |
(1) | Amounts include principal payments only. |
(2) | Projected interest payments are based on the outstanding principal amount and projected rate of 2.75% on the floating monthly Libor rate. |
(3) | Purchase obligations were excluded from contractual obligations as there were no binding purchase obligations as of March 31, 2018. |
Type of Expense | Amount | Estimated/Actual | |||
Selling commissions and dealer manager fees | $ | 1,644,007 | Actual | ||
Finders’ fees | — | — | |||
Expenses paid to or for underwriters | — | — | |||
Other organization and offering costs | 1,100,192 | Actual | |||
Total expenses | $ | 2,744,199 |
Exhibit | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
/s/ Allen R. Hartman | |
Allen R. Hartman | |
Chairman of the Board and Chief Executive Officer | |
(Principal Executive Officer) |
/s/ Louis T. Fox, III |
Louis T. Fox, III |
Chief Financial Officer and Treasurer |
(Principal Financial and Accounting Officer) |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
May 09, 2018 |
|
Document and Entity Information: | ||
Entity Registrant Name | Hartman vREIT XXI, Inc. | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Trading Symbol | hart | |
Amendment Flag | false | |
Entity Central Index Key | 0001654948 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 2,317,767 | |
Entity Filer Category | Smaller Reporting Company | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Par value of common stock (in dollars per share) | $ 0.01 | |
Shares of common stock authorized (in shares) | 900,000,000 | |
Par value of preferred stock (in shares) | $ 0.01 | $ 0.01 |
Shares of preferred stock authorized (in dollars per share) | 50,000,000 | 50,000,000 |
Preferred stock issued (in shares) | 0 | 0 |
Preferred stock outstanding (in shares) | 0 | 0 |
Class A | ||
Par value of common stock (in dollars per share) | $ 0.01 | $ 0.01 |
Shares of common stock authorized (in shares) | 850,000,000 | 850,000,000 |
Common stock issued (in shares) | 2,167,821 | 1,776,683 |
Common stock outstanding (In shares) | 2,167,821 | 1,776,683 |
Class T | ||
Par value of common stock (in dollars per share) | $ 0.01 | $ 0.01 |
Shares of common stock authorized (in shares) | 50,000,000 | 50,000,000 |
Common stock issued (in shares) | 93,482 | 74,634 |
Common stock outstanding (In shares) | 93,482 | 74,634 |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 3 months ended Mar. 31, 2018 - USD ($) |
Total |
Class A and Class T Common Stock |
Additional Paid-In Capital |
Accumulated Distributions And Net Loss |
---|---|---|---|---|
Balance at December 31, 2017 at Dec. 31, 2017 | $ 14,342,136 | $ 18,513 | $ 16,713,160 | $ (2,389,537) |
Balance, December 31, 2017 (in shares) at Dec. 31, 2017 | 1,851,317 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Issuance of common shares (in shares) | 409,986 | |||
Issuance of common shares | 3,981,473 | $ 4,100 | 3,977,373 | |
Selling commissions | (235,543) | (235,543) | ||
Dividends and distributions (stock based) | (107,039) | (107,039) | ||
Dividends and distributions (DRP based) | (97,932) | (97,932) | ||
Dividends and distributions (cash based) | (160,838) | (160,838) | ||
Net loss | (209,943) | (209,943) | ||
Balance, March 31, 2018 (in shares) at Mar. 31, 2018 | 2,261,303 | |||
Balance at March 31, 2018 at Mar. 31, 2018 | $ 17,512,314 | $ 22,613 | $ 20,454,990 | $ (2,965,289) |
Organization and Business |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Business | Organization and Business Hartman vREIT XXI, Inc. (the “Company”) was formed on September 3, 2015 as a Maryland corporation and the Company intends to qualify as a real estate investment trust (“REIT”) beginning with its taxable year ended December 31, 2017. The Company’s fiscal year end is December 31. In its initial public offering (the “Offering”), the Company is offering to the public up to $250,000,000 in any combination of shares of Class A and Class T common stock and up to $19,000,000 in shares of Class A and Class T common stock to stockholders pursuant to its distribution reinvestment plan. Class A common stock is being offered to the public at an initial price of $10.00 per share and to stockholders at an initial price of $9.50 per share for Class A common stock purchased pursuant to the distribution reinvestment plan. Class T common stock is being offered to the public at an initial price of $9.60 per share and to stockholders at an initial price of $9.12 per share for Class T common stock purchased pursuant to the distribution reinvestment plan. The Company’s board of directors may, in its sole discretion and from time to time, change the price at which the Company offers shares to the public in the primary offering or pursuant to its distribution reinvestment plan to reflect changes in estimated value per share and other factors that the board of directors deems relevant. The Company’s advisor is Hartman XXI Advisors, LLC (the “Advisor”), a Texas limited liability company and wholly owned subsidiary of Hartman Advisors, LLC. Hartman Income REIT Management, Inc., an affiliate of the Advisor, is the Company’s sponsor and property manager (“Sponsor” or “Property Manager”). Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company. Substantially all the Company’s business will be conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership (the “OP”). The Company is the sole general partner of the OP. The initial limited partners of the OP are Hartman vREIT XXI Holdings LLC, a wholly owned subsidiary of the Company (“XXI Holdings”), and Hartman vREIT XXI SLP LLC (“SLP LLC”), a wholly owned subsidiary of Hartman Advisors, LLC. SLP LLC has invested $1,000 in the OP in exchange for a separate class of limited partnership interests (the “Special Limited Partnership Interests”). As the Company accepts subscriptions for shares, it will transfer substantially all the net proceeds of the Offering to the OP as a capital contribution. The partnership agreement provides that the OP will be operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the OP will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), which classification could result in the OP being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the OP in acquiring and operating real properties, the OP will pay all the Company’s administrative costs and expenses and such expenses will be treated as expenses of the OP. As of March 31, 2018, we had accepted subscriptions for, and issued 2,167,821 shares of our Class A common stock, including 55,661 shares issued pursuant to our distribution reinvestment plan, and 93,482 shares of our Class T common stock in our initial public offering, including 2,142 shares issued pursuant to our distribution reinvestment plan resulting in gross offering proceeds of $21,935,254. |
Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2017 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of March 31, 2018, have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X, on a basis consistent with the annual audited consolidated financial statements. The unaudited consolidated financial statements presented herein reflect all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the financial position of the Company as of March 31, 2018, and the results of its consolidated operations for the three months ended March 31, 2018 and 2017, the consolidated statement of stockholders’ equity for the three months ended March 31, 2018 and the consolidated statements of cash flows for the three months ended March 31, 2018 and 2017. The results of the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018. The consolidated financial statements herein are condensed and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company’s consolidated financial statements include the Company’s accounts and the accounts of the OP, Hartman Village Pointe, LLC, Hartman Richardson Tech Center, LLC and XXI Holdings, the subsidiaries over which the Company has control. All intercompany balances and transactions are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents as of March 31, 2018 and December 31, 2017 consisted of demand deposits at commercial banks. Financial Instruments The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, accrued rent and accounts receivable, accounts payable and accrued expenses, notes payable, net and balances with related parties. The Company considers the carrying value, other than notes payable, net, to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its notes payable approximates fair value. Revenue Recognition The Company’s leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. The Company’s accrued rents are included in accrued rent and accounts receivable, net. The Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved Additionally, Cost recoveries from tenants are included in the Tenant Reimbursement and Other Revenues line item in the income statement in the period the related costs are incurred. As of January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers," (“ASU 2014-09”) which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach and the adoption of this guidance did not have a material impact on the consolidated financial statements. The Company’s revenue is primarily derived from leasing activities, which is specifically excluded from ASU 2014-09. The Company’s other revenue is comprised of tenant reimbursements for real estate taxes, insurance, common area maintenance, and operating expenses. Reimbursements from real estate taxes and certain other expenses are also excluded from of ASU 2014-09. Investment in Unconsolidated Joint Venture As of January 19, 2017, the Company owned more than 50% of Hartman Village Pointe and as of that date, and from that point forward Hartman Village Pointe is included in these consolidated financial statements. Effective February 8, 2017, the Company owned all of Hartman Village Pointe. On April 11, 2017, the Company entered into a membership interest purchase agreement with Hartman XX Operating Partnership (“XX OP”), the operating partnership of Hartman Short Term Income Properties XX, Inc., a related party, pursuant to which the Company may acquire up to $10,000,000 of XX OP’s equity ownership in Hartman Three Forest Plaza LLC. As of March 31, 2018, the Company has acquired an approximate 48.8% equity interest in Hartman Three Forest Plaza LLC for $8,700,000. The Company’s investment in Hartman Three Forest Plaza LLC is accounted for under the equity method. Real Estate Allocation of Purchase Price of Acquired Assets Acquisitions of integrated assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. The Company believes most of its future acquisitions of operating properties will qualify as asset acquisitions. Third party transaction costs, including acquisition fees paid to Advisor, associated with asset acquisitions will be capitalized while internal acquisition costs will continue to be expensed as incurred. Upon acquisition, the purchase price of properties is allocated to the tangible assets acquired, consisting of land, buildings and improvements, any assumed debt and asset retirement obligations, if any, based on their fair values. Acquisition costs, including acquisition fees paid to the Advisor, are capitalized as part of the purchase price. Initial valuations are subject to change during the measurement period, but the measurement period ends as soon as the information is available. The measurement period shall not exceed one year from the acquisition date. Land and building and improvement fair values are derived based upon the Company’s estimate of fair value after giving effect to estimated replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The fair values of above-market and below-market in-place lease values, including below-market renewal options for which renewal has been determined to be reasonably assured, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) an estimate of fair market lease rates for the corresponding in-place leases and below-market renewal options, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease and renewal option values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental income over the remaining expected terms of the respective leases. The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases. The Company determines the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that the Company believes it could obtain at the date of acquisition. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense. In allocating the purchase price of each of the Company’s properties, the Company makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. The Company uses Level 3 inputs to value acquired properties. Many of these estimates are obtained from independent third-party appraisals. However, the Company is responsible for the source and use of these estimates. These estimates require judgment and are subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of the Company’s properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in the Company’s consolidated financial statements. These variances could be material to the Company’s results of operations and financial condition. Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years’ remaining calculated on terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of the Company’s real estate assets as of March 31, 2018. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. Fair Value Measurement Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. Organization and Offering Costs As of March 31, 2018, total organization and offering costs incurred for the offering amounted to $1,100,192 of which the Advisor has incurred organization and offering costs of $970,214 on behalf of the Company. The Advisor has been reimbursed $877,443 for organization and offering costs which is limited to the total organizational and offering costs incurred by the Company (including selling commissions, dealer manager fees and all other underwriting compensation) not exceeding 15% of the aggregate gross proceeds from the sale of the shares of common stock sold in the Offering. Organization costs, when recorded by the Company, are expensed as incurred, and offering costs, which include selling commissions, dealer manager fees and all other underwriting compensation, are deferred and charged to stockholders’ equity as such amounts are reimbursed or paid by the Advisor, the dealer manager or their affiliates from gross offering proceeds. For the three months ended March 31, 2018 and 2017, such costs totaled $25,771 and $0, respectively. Income Taxes The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing in the taxable year ended December 31, 2017. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, so long as it distributes at least 90 percent of its REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP.) REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. Prior to qualifying to be taxed as a REIT, the Company is subject to normal federal and state corporation income taxes. For the three months ended March 31, 2018 and 2017, the Company had net (loss) income of ($209,943) and $38,516, respectively. The Company does not anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions. On December 22, 2017, H.R. 1, known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law and included wide-scale changes to individual, pass-through and corporation tax laws, including those that impact the real estate industry, the ownership of real estate and real estate investments, and REITs. The Company has reviewed the provisions of the law that pertain to the Company and have determined them to have no material income tax effect for financial statement purposes for the quarter ended March 31, 2018 or for the year ended December 31, 2017. (Loss) Earnings Per Share The computations of (loss) earnings per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Company’s potentially dilutive securities include special limited partnership interests – see Note 11. For the three months ended March 31, 2018 and 2017, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net loss per share for the three months ended March 31, 2018 and 2017 because no shares are issuable. Concentration of Risk The Company maintains cash accounts in one U.S. financial institution. The terms of the Company’s deposits are on demand to minimize risk. The balances of the Company’s depository accounts may exceed the federally insured limit. As of March 31, 2018, the Company had one depository account with a total of $1,453,821 in excess of the federally insured limit. No losses have been incurred in connection with these deposits. The geographic concentration of the Company’s real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders Major tenants are defined as those tenants which individually comprise more than 10% of the Company’s total rental revenues. No tenant represents more than 10% of total annualized rental revenue for the three months ended March 31, 2018. Recent Accounting Pronouncements On January 1, 2018, the Company adopted the new accounting standard codified in Accounting Standards Codification (“ASC”) 606 - “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 replaces most existing revenue recognition guidance under GAAP. The standard permits the use of either the retrospective or cumulative effect transition method. Certain contracts with customers, principally lease contracts, are not within the scope of the new guidance. The Company has elected to use the retrospective method. The adoption of ASC 606 - had no impact on the beginning cumulative accumulated distributions and net loss at January 1, 2018. The Company has adopted this guidance for all periods presented. On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-01, “Recognition and Measurement of Financial Assets and Liabilities,” issued by the Financial Accounting Standards Board (“FASB”), which enhances the reporting requirements surrounding the measurement of financial instruments and requires equity securities to be measured at fair value with changes in the fair value recognized through net income for the period. The adoption of ASU No. 2016-01 had no material effect on the consolidated financial position or consolidated results of operations. On January 1, 2018, the Company adopted ASU No. 2016-17, “Interest Held Through Related Parties That Are Under Common Control,” issued by the FASB, which amends the accounting guidance when determining the treatment of certain VIE’s to include the interest of related parties under common control in a VIE when considering whether or not the reporting entity is the primary beneficiary of the VIE when considering consolidation. The adoption of ASU No. 2016-17 had no material effect on the consolidated financial position or consolidated results of operations. On January 1, 2018, the Company adopted ASU No. 2016-18, Classification of Restricted Cash,” issued by the FASB, which addresses the Statement of Cash Flow classification and presentation of restricted cash transactions. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has elected to use the retrospective method. The adoption of ASU No. 2016-18 had no material effect on the Company’s consolidated financial position or consolidated results of operations. Recent Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which changes lessee accounting to reflect the financial liability and right-of-use asset that are inherent to leasing an asset on the balance sheet. ASU No. 2016-02 is effective for our fiscal year commencing on January 1, 2019, but early adoption is permitted. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-02 to have a material effect on our consolidated financial position or our consolidated results of operations. |
Real Estate |
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Real Estate | Real Estate The Company’s real estate assets as of March 31, 2018 and December 31, 2017 consisted of the following:
Depreciation expense for the three months ended March 31, 2018 and 2017 was $40,902 and $20,016, respectively. Amortization expenses for the three months ended March 31, 2018 and 2017 was $80,937 and $0, respectively. The Company identifies and records the value of acquired lease intangibles at the property acquisition date. Such intangibles include the value of acquired in-place leases and above and below-market leases. Acquired lease intangibles are amortized over the leases' remaining terms. With respect to all properties owned by the Company, the Company considers all of the in-place leases to be market rate leases. The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows:
Acquisition fees incurred were $126,000 and $142,500 for the three months ended March 31, 2018 and 2017, respectively. The acquisition fee has been capitalized and added to the real estate assets, at cost, in the accompanying consolidated balance sheets. Asset management fees incurred were $15,048 and $10,575 for the three months ended March 31, 2018 and 2017, respectively. Asset management fees are captioned as such in the accompanying consolidated statements of operations. On March 14, 2018, the Company, through Hartman Richardson Tech Center, LLC, a wholly-owned subsidiary of the OP, acquired a fee simple interest in a four building, multi-tenant flex/R&D property containing approximately 96,660 square feet of office space and located in Richardson, Texas. The property is commonly known as Richardson Tech. Richardson Tech was acquired from an unrelated third-party seller, for a purchase price, as amended, of $5,040,000, exclusive of closing costs. The Company financed the payment of the purchase price for Richardson Tech with proceeds from the Company’s public offering and $2,520,000 mortgage loan proceeds from a bank. The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Company’s purchase price allocations of the Richardson Tech property acquisition:
As of January 19, 2017, the Company owned more than 50% of Hartman Village Pointe and as of that date, and from that point forward Hartman Village Pointe is included in these consolidated financial statements. As of February 8, 2017, the Company owned 100% of Hartman Village Pointe. The Company re-measured its interest, with a carrying value of $3,764,024 as of February 8, 2017. The acquisition date fair value of the previous equity interest in the joint venture was $3,761,830. The Company recognized a loss of $2,194 as a result of revaluing its prior equity interest held before the acquisition. The loss is reflected as “loss on re-measurement” in the consolidated statements of operations. The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Company’s purchase price allocations of the Village Pointe property acquisition:
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Investment in unconsolidated joint venture |
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment in unconsolidated joint venture | Investment in unconsolidated joint venture On April 11, 2017, the Company entered into a membership interest purchase agreement with XX OP, the operating partnership of Hartman Short Term Income Properties XX, Inc., an affiliate of the Company. Pursuant to the terms of a membership interest purchase agreement between the Company and Hartman XX OP, the Company may acquire up to $10,000,000 of the equity membership interest of Hartman XX OP in Hartman Three Forest Plaza, LLC (“Three Forest Plaza LLC”). As of March 31, 2018, the Company has acquired an approximately 48.8% equity interest in Three Forest Plaza LLC for $8,700,000. For the three months ended March 31, 2018, Three Forest Plaza LLC's operating results were as follows:
Equity in (losses) earnings of the unconsolidated joint venture were ($98,803) and $8,399 for the three months ended March 31, 2018 and 2017, respectively. Equity in (losses) earnings of unconsolidated entities is captioned as such in the accompanying consolidated statements of operations. |
Accrued Rent and Accounts Receivable, Net |
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Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Rent and Accounts Receivable, net | Accrued Rent and Accounts Receivable, net Accrued rent and accounts receivable, net, consisted of the following:
As of March 31, 2018 and December 31, 2017, the Company had an allowance for uncollectible accounts of $3,796 and $12,757, respectively, related to tenant receivables that the Company has specifically identified as potentially uncollectible based on assessment of each tenant’s credit-worthiness. For the three months ended March 31, 2018 and 2017, the Company recorded a net bad debt recovery in the amount of $8,961 and $0, respectively. Bad debt expense and any related recoveries are included in property operating expenses in the accompanying consolidated statements of operations. |
Notes Payable, net |
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Notes Payable, net | Notes Payable, net The following is a summary of the Company’s notes payable as of March 31, 2018:
The Company’s wholly owned subsidiary, Hartman Village Pointe, LLC, is a party to a $3,525,000, three-year mortgage loan agreement with a bank. The mortgage loan is secured by the Village Pointe property. Unamortized deferred loan costs at the time of the acquisition, on February 8, 2017, of Hartman Village Pointe, LLC were $65,195. The interest rate is one-month LIBOR plus 2.75%. The loan is payable in monthly installments of interest only until the initial maturity date which is December 14, 2019. Thereafter, if the loan is extended pursuant to the terms of the loan agreement, the loan will be payable in monthly installments of principal and interest. The interest rate as at March 31, 2018 was 4.245%. The Company’s wholly owned subsidiary, Hartman Richardson Tech Center, LLC, is a party to a $2,520,000, three-year mortgage loan agreement with a bank. The mortgage loan is secured by the Richardson Tech property. Unamortized deferred loan costs at the time of the acquisition, on March 14, 2018, of Hartman Richardson Tech Center, LLC were $70,151. The interest rate is one-month LIBOR plus 2.75%. The loan is payable in monthly installments of interest only until the initial maturity date which is March 14, 2021. Thereafter, if the loan is extended pursuant to the terms of the loan agreement, the loan will be payable in monthly installments of principal and interest. The interest rate at March 31, 2018 was 4.526%. Interest expense for the three months ended March 31, 2018 and 2017 was $53,310 and $29,281, respectively, including $5,588 and $3,725 of deferred loan cost amortization. Unamortized deferred loan costs were $109,268 and $44,705 as of March 31, 2018 and December 31, 2017, respectively. Interest expense of $7,066 and $6,622 was payable as of March 31, 2018 and December 31, 2017, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. |
Related Party Arrangements |
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Related Party Transactions [Abstract] | |
Related Party Arrangements | Related Party Arrangements The Advisor is a wholly owned subsidiary of Hartman Advisors LLC, a Texas limited liability company owned 70% by Allen R. Hartman individually and 30% by the Property Manager. The Property Manager is a wholly owned subsidiary of Hartman Income REIT Management, LLC, which is wholly owned by Hartman Income REIT, Inc. and Subsidiaries, of which approximately 16% of the voting stock is owned by Allen R. Hartman who is the Chief Executive Officer and Chairman of the Board of Directors. The Advisor and certain affiliates of the Advisor will receive fees and compensation in connection with the Offering, and the acquisition, management and sale of the Company’s real estate investments. In addition, in exchange for $1,000, the OP has issued the Advisor a separate, special limited partnership interest, in the form of Special Limited Partnership Interests. See Note 11 (“Special Limited Partnership Interest”) below. The Advisor will receive reimbursement for organizational and offering expenses incurred on the Company’s behalf, but only to the extent that such reimbursements do not exceed actual expenses incurred by the Advisor and would not cause the cumulative selling commission, the dealer manager fee and other organization and offering expenses borne by the Company to exceed 15.0% of gross offering proceeds from the sale of shares in the Offering. The Advisor, or its affiliates, will receive an acquisition fee equal to 2.5% of the cost of each investment the Company acquires, which includes the amount actually paid or allocated to fund the purchase, development, construction or improvement of each investment, including acquisition expenses and any debt attributable to each investment. Acquisition fees of $126,000 were earned by the Advisor for the acquisition of the Richardson Tech Center property during the quarter ended March 31, 2018. Acquisition fees of $142,500 were earned by the Advisor as a result of the interests acquired in the Village Pointe property during the quarter ended March 31, 2017. The Advisor, or its affiliates, will receive a debt financing fee equal to 1.0% of the amount available under any loan or line of credit originated or assumed, directly or indirectly, in connection with the acquisition, development, construction, improvement of properties or other permitted investments, which will be in addition to the acquisition fee paid to the Advisor. No debt financing fees were earned by Advisor for the three months ended March 31, 2018 and 2017. The Company pays the Property Manager, an affiliate of the Advisor, property management fees equal to 3% of the effective gross revenues of the managed property. The Company pays and expects to pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services in the same geographic location of the applicable property, provided that such fees will only be paid if a majority of the Company’s board of directors, including a majority of its independent directors, determines that such fees are fair and reasonable in relation to the services being performed. The Property Manager may subcontract the performance of its property management and leasing duties to third parties and the Property Manager will pay a portion of its property management fee to the third parties with whom it subcontracts for these services. The Company will reimburse the costs and expenses incurred by the Property Manager on the Company’s behalf, including the wages and salaries and other employee-related expenses of all employees of the Property Manager or its subcontractors who are engaged in the operation, management, maintenance or access control of our properties, including taxes, insurance and benefits relating to such employees, and travel and other out-of-pocket expenses that are directly related to the management of specific properties. Other charges, including fees and expenses of third-party professionals and consultants, will be reimbursed, subject to the limitations on fees and reimbursements contained in the Company's Articles of Amendment and Restatement (as amended and restated, the "Charter"). If HIRM provides construction management services related to the improvement or finishing of tenant space in the Company’s real estate properties, the Company pays HIRM a construction management fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, that the Company will only pay a construction management fee if a majority of the Company’s board of directors, including a majority of its independent directors, determines that such construction management fee is fair and reasonable and on terms and conditions not less favorable than those available from unaffiliated third parties. The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the higher of (i) the cost or (ii) the value of all real estate investments the Company acquires. If Advisor or affiliate provides a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of one or more assets, the Company will pay the Advisor a disposition fee equal to (1) in the case of the sale of real property, the lesser of: (A) one-half of the aggregate brokerage commission paid (including the disposition fee) or, if none is paid, the amount that customarily would be paid, or (B) 3% of the sales price of each property sold, and (2) in the case of the sale of any asset other than real property, 3% of the sales price of such asset. The Company will reimburse the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that, commencing four fiscal quarters after the Company’s acquisition of its first asset, the Company will not reimburse the Advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (1) 2% of the Company’s average invested assets (as defined in the Charter), or (2) 25% of the Company’s net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company’s assets for that period. Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the three months ended March 31, 2018 and 2017, the Company incurred property management fees and reimbursable costs of $22,362 and $11,711, respectively, payable to the Property Manager and asset management fees of $15,048 and $10,575, respectively, payable to the Advisor. Property management fees and reimbursable costs paid to the Property Manager are included in property operating expenses in the accompanying consolidated statements of operations. Asset management fees paid to the Advisor are included in asset management fees in the accompanying consolidated statements of operations. As of March 31, 2018, the Company had $390,151 due to the Advisor and $730,693 due from Hartman Short Term Income Properties XX, Inc. and $23,277 due to other Hartman affiliates. As of December 31, 2017, the Company had $1,896 due from the Advisor and $274,401 due from Hartman Short Term Income Properties XX, Inc. and $7,389 due to other Hartman affiliates. Mr. Jack Cardwell, an independent director, and his affiliates, have invested $2,280,000 for the purchase of 251,619 Class A common shares in the Company. As of March 31, 2018, Mr. Cardwell and his affiliates owned approximately 11% of the Company’s outstanding stock. |
Earnings (Loss) Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings (loss) per share is computed using net income (loss) attributable to common stockholders and the weighted average number of common shares outstanding.
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Stockholders' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Stockholders’ Equity Under the Charter, the Company has the authority to issue 900,000,000 shares of common stock, $0.01 per share par value, classified and designated as 850,000,000 shares of Class A common stock, 50,000,000 shares of Class T common stock, and 50,000,000 shares of preferred stock with a par value of $0.01 per share. On September 30, 2015, the Company sold 22,100 shares of common stock to Hartman Advisors, LLC at a purchase price of $9.05 per share for an aggregate purchase price of $200,005, which was paid in cash. The Company’s board of directors is authorized to amend the Charter, without the approval of the Company’s stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. Common Stock Shares of Class A and Class T common stock entitle the holders to one vote per share on all matters which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. Neither Class A or Class T common stock have any preferences or preemptive conversion or exchange rights. Preferred Stock The board of directors, with the approval of a majority of the entire board of directors and without any action by the stockholders, may amend the charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series. If the Company were to create and issue preferred stock or convertible stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock or convertible stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities and the removal of incumbent management. Stock-Based Compensation The Company awards vested restricted common shares to non-employee directors as compensation in part for their service as members of the board of directors of the Company. These shares are fully vested when granted. These shares may not be sold while an independent director is serving on the board of directors. For the three months ended March 31, 2018 and 2017, the Company granted 1,875 and 0 shares, respectively, of restricted common stock to independent directors as compensation for services. The Company recognized $18,750 and $0, respectively, stock-based compensation expense for the three months ended March 31, 2018 and 2017. Distributions The following table summarizes the distributions we declared in cash and in shares of our common stock and the amount of distributions reinvested pursuant to the distribution reinvestment plan for the period from December 2016 (the month we first declared distributions) through March 31, 2018:
The monthly distribution for Class A common stockholders of record as of the close of business on each day commencing on or after December 1, 2016 is payable in cumulative amounts on or before the 20th day of each calendar month with respect to the prior month. With respect to the cash distribution, the distribution amount is calculated at a rate of $0.0015068 per Class A common share per day. With respect to the stock distribution, the distribution amount is calculated at a rate of 0.000547945 Class A common shares of Class A common stock per day. The monthly distribution for Class T common stockholders of record as of the close of business on each day commencing on or after April 1, 2017 is payable in cumulative amounts on or before the 20th day of each calendar month with respect to the prior month. With respect to the cash distribution, the distribution amount is calculated at a rate of $0.0012548 per Class T common share per day. With respect to the stock distribution, the distribution amount is calculated at a rate of 0.0004548 Class T common shares of Class T common stock per day. The Class T common stock cash distribution rate reflects the applicable annual shareholder servicing fee for Class T common shares. |
Incentive Plans |
3 Months Ended |
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Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Incentive Plans | Incentive Plans The Company has adopted a long-term incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, officers, employees and consultants of the Company and the Company’s affiliates selected by the board of directors for participation in the Incentive Award Plan. Stock options and shares of restricted common stock granted under the Incentive Award Plan will not, in the aggregate, exceed an amount equal to 5.0% of the outstanding shares of the Company’s common stock on the date of grant or award of any such stock options or shares of restricted stock. Stock options may not have an exercise price that is less than the fair market value of a share of the Company’s common stock on the date of grant. Shares of common stock will be authorized and reserved for issuance under the Incentive Award Plan. The Company has adopted an independent directors’ compensation plan (the “Independent Directors Compensation Plan”) pursuant to which each of the Company’s independent directors will be entitled, subject to the plan’s conditions and restrictions, to receive an initial grant of 3,000 shares of restricted stock when the Company raises the minimum offering amount of $1,000,000 in the Offering. Each new independent director that subsequently joins the Company’s board of directors will receive a grant of 3,000 shares of restricted stock upon his or her election to the Company’s board of directors. The shares of restricted common stock granted to independent directors fully vest upon the completion of the annual term for which the director was elected. Subject to certain conditions, the non-vested shares of restricted stock granted pursuant to the Independent Directors Compensation Plan will become fully vested on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company. The Company recognized stock based compensation expenses of $18,750 and $0, respectively, with respect to the independent director compensation for the three months ended March 31, 2018 and 2017. |
Special Limited Partnership Interest |
3 Months Ended |
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Mar. 31, 2018 | |
Equity [Abstract] | |
Special Limited Partnership Interest | Special Limited Partnership Interest Pursuant to the limited partnership agreement for the OP, SLP LLC, the holder of the Special Limited Partnership Interest, will be entitled to receive distributions equal to 15.0% of the OP’s net sales proceeds from the disposition of assets, but only after the Company’s stockholders have received, in the aggregate, cumulative distributions equal to their total invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such aggregated invested capital. In addition, the holder of the Special Limited Partnership Interest is entitled to receive a payment upon the redemption of the Special Limited Partnership Interests. Pursuant to the limited partnership agreement for the OP, the Special Limited Partnership Interests will be redeemed upon: (1) the listing of the Company’s common stock on a national securities exchange; (2) the occurrence of certain events that result in the termination or non-renewal of the Company’s advisory agreement with the Advisor (“Advisory Agreement”) other than by the Company for “cause” (as defined in the Advisory Agreement); or (3) the termination of the Advisory Agreement by the Company for cause. In the event of the listing of the Company’s shares of common stock or a termination of the Advisory Agreement other than by the Company for cause, the Special Limited Partnership Interests will be redeemed for an aggregate amount equal to the amount that the holder of the Special Limited Partnership Interests would have been entitled to receive, as described above, if the OP had disposed of all of its assets at their fair market value and all liabilities of the OP had been satisfied in full according to their terms as of the date of the event triggering the redemption. Payment of the redemption price to the holder of the Special Limited Partnership Interests will be paid, at the holder’s discretion, in the form of (i) limited partnership interests in the OP, (ii) shares of the Company’s common stock, or (iii) a non-interest bearing promissory note. If the event triggering the redemption is a listing of the Company’s shares on a national securities exchange only, the fair market value of the assets of the OP will be calculated taking into account the average share price of the Company’s shares for a specified period. If the event triggering the redemption is an underwritten public offering of the Company’s shares, the fair market value will take into account the valuation of the shares as determined by the initial public offering price in such offering. If the triggering event of the redemption is the termination or non-renewal of the Advisory Agreement other than by the Company for cause for any other reason, the fair market value of the assets of the OP will be calculated based on an appraisal or valuation of the Company’s assets. In the event of the termination or non-renewal of the Advisory Agreement by the Company for cause, all of the Special Limited Partnership Interests will be redeemed by the OP for the aggregate price of $1. |
Commitments and Contingencies |
3 Months Ended |
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Mar. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Economic Dependency The Company is dependent on the Sponsor and the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of properties, management of the daily operations of the Company’s real estate portfolio, and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other providers. Litigation The Company is subject to various claims and legal actions that arise in the ordinary course of business. Management of the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position of the Company. |
Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2017 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of March 31, 2018, have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X, on a basis consistent with the annual audited consolidated financial statements. The unaudited consolidated financial statements presented herein reflect all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the financial position of the Company as of March 31, 2018, and the results of its consolidated operations for the three months ended March 31, 2018 and 2017, the consolidated statement of stockholders’ equity for the three months ended March 31, 2018 and the consolidated statements of cash flows for the three months ended March 31, 2018 and 2017. The results of the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018. The consolidated financial statements herein are condensed and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company’s consolidated financial statements include the Company’s accounts and the accounts of the OP, Hartman Village Pointe, LLC, Hartman Richardson Tech Center, LLC and XXI Holdings, the subsidiaries over which the Company has control. All intercompany balances and transactions are eliminated in consolidation. |
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Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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Cash and Cash Equivalents | Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. |
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Financial Instruments | Financial Instruments The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, accrued rent and accounts receivable, accounts payable and accrued expenses, notes payable, net and balances with related parties. The Company considers the carrying value, other than notes payable, net, to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its notes payable approximates fair value. |
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Revenue Recognition | Revenue Recognition The Company’s leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. The Company’s accrued rents are included in accrued rent and accounts receivable, net. The Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved Additionally, Cost recoveries from tenants are included in the Tenant Reimbursement and Other Revenues line item in the income statement in the period the related costs are incurred. As of January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers," (“ASU 2014-09”) which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach and the adoption of this guidance did not have a material impact on the consolidated financial statements. The Company’s revenue is primarily derived from leasing activities, which is specifically excluded from ASU 2014-09. The Company’s other revenue is comprised of tenant reimbursements for real estate taxes, insurance, common area maintenance, and operating expenses. Reimbursements from real estate taxes and certain other expenses are also excluded from of ASU 2014-09. |
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Real Estate | Allocation of Purchase Price of Acquired Assets Acquisitions of integrated assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. The Company believes most of its future acquisitions of operating properties will qualify as asset acquisitions. Third party transaction costs, including acquisition fees paid to Advisor, associated with asset acquisitions will be capitalized while internal acquisition costs will continue to be expensed as incurred. Upon acquisition, the purchase price of properties is allocated to the tangible assets acquired, consisting of land, buildings and improvements, any assumed debt and asset retirement obligations, if any, based on their fair values. Acquisition costs, including acquisition fees paid to the Advisor, are capitalized as part of the purchase price. Initial valuations are subject to change during the measurement period, but the measurement period ends as soon as the information is available. The measurement period shall not exceed one year from the acquisition date. Land and building and improvement fair values are derived based upon the Company’s estimate of fair value after giving effect to estimated replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The fair values of above-market and below-market in-place lease values, including below-market renewal options for which renewal has been determined to be reasonably assured, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) an estimate of fair market lease rates for the corresponding in-place leases and below-market renewal options, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease and renewal option values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental income over the remaining expected terms of the respective leases. The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases. The Company determines the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that the Company believes it could obtain at the date of acquisition. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense. In allocating the purchase price of each of the Company’s properties, the Company makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. The Company uses Level 3 inputs to value acquired properties. Many of these estimates are obtained from independent third-party appraisals. However, the Company is responsible for the source and use of these estimates. These estimates require judgment and are subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of the Company’s properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in the Company’s consolidated financial statements. These variances could be material to the Company’s results of operations and financial condition. |
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Depreciation and Amortization | Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. |
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Impairment | Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of the Company’s real estate assets as of March 31, 2018. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. |
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Fair Value Measurement | Fair Value Measurement Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. |
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Accrued Rent and Accounts Receivable | Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. |
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Income Taxes | Income Taxes The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing in the taxable year ended December 31, 2017. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, so long as it distributes at least 90 percent of its REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP.) REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. Prior to qualifying to be taxed as a REIT, the Company is subject to normal federal and state corporation income taxes. For the three months ended March 31, 2018 and 2017, the Company had net (loss) income of ($209,943) and $38,516, respectively. The Company does not anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions. |
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(Loss) Earnings Per Share | (Loss) Earnings Per Share The computations of (loss) earnings per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Company’s potentially dilutive securities include special limited partnership interests – see Note 11. |
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Concentration of Risk | Concentration of Risk The Company maintains cash accounts in one U.S. financial institution. The terms of the Company’s deposits are on demand to minimize risk. The balances of the Company’s depository accounts may exceed the federally insured limit. As of March 31, 2018, the Company had one depository account with a total of $1,453,821 in excess of the federally insured limit. No losses have been incurred in connection with these deposits. The geographic concentration of the Company’s real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders |
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Recent Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted | Recent Accounting Pronouncements On January 1, 2018, the Company adopted the new accounting standard codified in Accounting Standards Codification (“ASC”) 606 - “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 replaces most existing revenue recognition guidance under GAAP. The standard permits the use of either the retrospective or cumulative effect transition method. Certain contracts with customers, principally lease contracts, are not within the scope of the new guidance. The Company has elected to use the retrospective method. The adoption of ASC 606 - had no impact on the beginning cumulative accumulated distributions and net loss at January 1, 2018. The Company has adopted this guidance for all periods presented. On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-01, “Recognition and Measurement of Financial Assets and Liabilities,” issued by the Financial Accounting Standards Board (“FASB”), which enhances the reporting requirements surrounding the measurement of financial instruments and requires equity securities to be measured at fair value with changes in the fair value recognized through net income for the period. The adoption of ASU No. 2016-01 had no material effect on the consolidated financial position or consolidated results of operations. On January 1, 2018, the Company adopted ASU No. 2016-17, “Interest Held Through Related Parties That Are Under Common Control,” issued by the FASB, which amends the accounting guidance when determining the treatment of certain VIE’s to include the interest of related parties under common control in a VIE when considering whether or not the reporting entity is the primary beneficiary of the VIE when considering consolidation. The adoption of ASU No. 2016-17 had no material effect on the consolidated financial position or consolidated results of operations. On January 1, 2018, the Company adopted ASU No. 2016-18, Classification of Restricted Cash,” issued by the FASB, which addresses the Statement of Cash Flow classification and presentation of restricted cash transactions. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has elected to use the retrospective method. The adoption of ASU No. 2016-18 had no material effect on the Company’s consolidated financial position or consolidated results of operations. Recent Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which changes lessee accounting to reflect the financial liability and right-of-use asset that are inherent to leasing an asset on the balance sheet. ASU No. 2016-02 is effective for our fiscal year commencing on January 1, 2019, but early adoption is permitted. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-02 to have a material effect on our consolidated financial position or our consolidated results of operations. |
Real Estate (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Assets | The Company’s real estate assets as of March 31, 2018 and December 31, 2017 consisted of the following:
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In-Place Lease Intangible Assets and Accumulated Amortization | The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows:
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Fair Value of the Assets Acquired and Liabilities Assumed | The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Company’s purchase price allocations of the Richardson Tech property acquisition:
The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Company’s purchase price allocations of the Village Pointe property acquisition:
|
Investment in unconsolidated joint venture (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Equity Method Investments | For the three months ended March 31, 2018, Three Forest Plaza LLC's operating results were as follows:
|
Accrued Rent and Accounts Receivable, Net (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Rent and Accounts Receivable, Net | Accrued rent and accounts receivable, net, consisted of the following:
|
Notes Payable, net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Notes Payable | The following is a summary of the Company’s notes payable as of March 31, 2018:
|
Earnings (Loss) Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic Earnings (Loss) Per Share | Basic earnings (loss) per share is computed using net income (loss) attributable to common stockholders and the weighted average number of common shares outstanding.
|
Stockholders' Equity (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions | The following table summarizes the distributions we declared in cash and in shares of our common stock and the amount of distributions reinvested pursuant to the distribution reinvestment plan for the period from December 2016 (the month we first declared distributions) through March 31, 2018:
|
Real Estate - Real Estate Assets (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Real Estate [Abstract] | ||
Land | $ 3,022,500 | $ 1,762,500 |
Buildings and improvements | 8,053,758 | 4,413,865 |
In-place lease value intangible | 1,369,194 | 1,084,195 |
Real estate assets, gross | 12,445,452 | 7,260,560 |
Less accumulated depreciation and amortization | (524,694) | (402,855) |
Real estate assets, net | $ 11,920,758 | $ 6,857,705 |
Real Estate - Narrative (Details) |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 14, 2018
USD ($)
ft²
|
Feb. 08, 2017
USD ($)
|
Jan. 19, 2017
USD ($)
|
Mar. 31, 2018
USD ($)
|
Mar. 31, 2017
USD ($)
|
|
Real Estate [Line Items] | |||||
Depreciation expense | $ 40,902 | $ 20,016 | |||
Amortization | 80,937 | 0 | |||
Acquisition fees | 126,000 | 142,500 | |||
Asset management fees | $ 15,048 | $ 10,575 | |||
Richardson Tech | Mortgages | |||||
Real Estate [Line Items] | |||||
Mortgage loan proceeds | $ 2,520,000 | ||||
Richardson Tech | |||||
Real Estate [Line Items] | |||||
Area of office space | ft² | 96,660 | ||||
Purchase price | $ 5,040,000 | ||||
Hartman Village Pointe | |||||
Real Estate [Line Items] | |||||
Ownership interest | 100.00% | 50.00% | |||
Carrying value of real estate property acquired | $ 3,764,024 | $ 3,761,830 | |||
Loss on revaluation of prior equity interest held before acquisition | $ 2,194 |
Real Estate - In-Place Lease Intangible Assets and Accumulated Amortization (Details) - In-Place Leases - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
In-place lease value intangible | $ 1,369,194 | $ 1,084,195 |
In-place leases – accumulated amortization | (365,170) | (284,233) |
Acquired in-place lease intangible assets, net | $ 1,004,024 | $ 799,962 |
Real Estate - Fair Value of the Assets Acquired and Liabilities Assumed (Details) - USD ($) |
Mar. 14, 2018 |
Feb. 08, 2017 |
---|---|---|
Richardson Tech | ||
Assets acquired: | ||
Real estate assets | $ 5,040,000 | |
Accounts receivable and other assets | 0 | |
Total assets | 5,040,000 | |
Liabilities assumed: | ||
Security deposits | (45,650) | |
Total liabilities assumed | (45,650) | |
Fair value of net assets acquired | $ 4,994,350 | |
Hartman Village Pointe | ||
Assets acquired: | ||
Real estate assets | $ 7,050,000 | |
Accounts receivable and other assets | 273,352 | |
Total assets | 7,323,352 | |
Liabilities assumed: | ||
Note payable | (3,459,805) | |
Accounts payable and accrued expenses | (49,509) | |
Security deposits | (52,208) | |
Total liabilities assumed | (3,561,522) | |
Fair value of net assets acquired | $ 3,761,830 |
Investment in unconsolidated joint venture (Details) - Three Forest Plaza LLC - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Apr. 11, 2017 |
|
Schedule of Equity Method Investments [Line Items] | |||
Maximum interest to be acquired under purchase agreement | $ 10,000,000 | ||
Ownership interest in equity method investment | 48.80% | ||
Acquisition cost of equity method investment | $ 8,700,000 | ||
Equity in (losses) earnings of unconsolidated joint ventures | $ (98,803) | $ 8,399 |
Investment in unconsolidated joint venture - Summary of Equity Method Investments (Details) |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Schedule of Equity Method Investments [Line Items] | |
Net loss from discontinued operations | $ (202,465) |
Three Forest Plaza LLC | |
Schedule of Equity Method Investments [Line Items] | |
Total revenues | 1,566,998 |
Property operating expenses | 474,270 |
Real estate taxes and insurance | 260,420 |
Asset management fees | 66,853 |
Depreciation and amortization | 728,501 |
General and administrative | 20,630 |
Interest expense | 218,789 |
Total expenses | $ 1,769,463 |
Accrued Rent and Accounts Receivable, Net (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Receivables [Abstract] | |||
Tenant receivables | $ 6,366 | $ 13,779 | |
Accrued rent | 46,158 | 37,171 | |
Allowance for uncollectible accounts | (3,796) | (12,757) | |
Accrued rents and accounts receivable, net | 48,728 | 38,193 | |
Allowance for uncollectible accounts | 3,796 | $ 12,757 | |
Provision for doubtful accounts | $ 8,961 | $ 0 |
Notes Payable, net - Notes Payable (Details) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2018 |
Mar. 14, 2018 |
Dec. 31, 2017 |
Feb. 08, 2017 |
|
Debt Instrument [Line Items] | ||||
Principal balance, gross | $ 6,045,000 | |||
Less unamortized loan costs | (109,268) | $ (44,705) | ||
Principal balance, net | 5,935,732 | |||
Village Pointe SC | Mortgages | ||||
Debt Instrument [Line Items] | ||||
Principal balance, gross | $ 3,525,000 | |||
Less unamortized loan costs | $ (65,195) | |||
Rate | 4.245% | |||
Richardson Tech Center | Mortgages | ||||
Debt Instrument [Line Items] | ||||
Principal balance, gross | $ 2,520,000 | |||
Less unamortized loan costs | $ (70,151) | |||
Rate | 4.526% |
Notes Payable, net - Narrative (Details) - USD ($) |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 14, 2018 |
Feb. 08, 2017 |
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Debt Instrument [Line Items] | |||||
Unamortized deferred loan costs | $ 109,268 | $ 44,705 | |||
Interest expense | 53,310 | $ 29,281 | |||
Deferred loan cost amortization | 5,588 | $ 3,725 | |||
Interest payable | $ 7,066 | $ 6,622 | |||
Village Pointe SC | Mortgages | |||||
Debt Instrument [Line Items] | |||||
Face amount of debt | $ 3,525,000 | ||||
Unamortized deferred loan costs | $ 65,195 | ||||
Interest rate | 4.245% | ||||
Term of loan agreement | 3 years | ||||
Village Pointe SC | Mortgages | LIBOR | |||||
Debt Instrument [Line Items] | |||||
Basis spread on variable rate | 2.75% | ||||
Richardson Tech Center | Mortgages | |||||
Debt Instrument [Line Items] | |||||
Face amount of debt | $ 2,520,000 | ||||
Unamortized deferred loan costs | $ 70,151 | ||||
Interest rate | 4.526% | ||||
Term of loan agreement | 3 years | ||||
Richardson Tech Center | Mortgages | LIBOR | |||||
Debt Instrument [Line Items] | |||||
Basis spread on variable rate | 2.75% |
Earnings (Loss) Per Share (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Numerator: | ||
Net (loss) income attributable to common stockholders | $ (209,943) | $ 38,516 |
Denominator: | ||
Basic weighted average shares outstanding (in shares) | 1,985,458 | 417,003 |
Basic income per common share (in dollars per share) | $ (0.11) | $ 0.09 |
Stockholders' Equity - Distributions (Details) - USD ($) |
3 Months Ended | 4 Months Ended | 9 Months Ended | 31 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2016 |
Mar. 31, 2018 |
|
Dividends Payable [Line Items] | |||||||||
Dividends | $ 365,809 | $ 330,615 | $ 236,021 | $ 158,384 | $ 70,367 | $ 8,347 | $ 0 | $ 0 | $ 1,169,543 |
Cash | |||||||||
Dividends Payable [Line Items] | |||||||||
Dividends | 160,838 | 154,145 | 105,245 | 71,216 | 35,853 | 6,121 | 0 | 0 | 533,418 |
DRP & Stock | |||||||||
Dividends Payable [Line Items] | |||||||||
Dividends | $ 204,971 | $ 176,470 | $ 130,776 | $ 87,168 | $ 34,514 | $ 2,226 | $ 0 | $ 0 | $ 636,125 |
Special Limited Partnership Interest (Details) |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Equity [Abstract] | |
Distribution amount as a percent of net sales proceeds from the dispositions of assets | 15.00% |
Cumulative non-compounded pre-tax return rate on aggregated invested capital | 6.00% |
Aggregate redemption price | $ 1 |
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