6 .	Investment in Affiliate

March 19, 2019,

the Company entered into subscription agreements with HC Realty, pursuant to which it purchased (i)

200,000

shares of HC Realty’s

10.00%

Series B Cumulative Convertible Preferred Stock (the “Series B Stock”) for an aggregate purchase price of

$2,000,000

and (ii)

300,000

shares of HC Realty’s common stock for an aggregate purchase price of

$3,000,000.

Certain investors affiliated with HPCM purchased an additional

850,000

shares of Series B Stock for an aggregate purchase price of

$8,500,000.

While some of these investors have other investments with HPCM, each of these investors made a separate and direct investment in HC Realty and HPCM does

not

receive management fees, performance fees, or any other economic benefits with respect to these investors’ investment in HC Realty’s Series B Stock.

The Series B Stock is

not

deemed to be in-substance common stock and is accounted for using the measurement alternative for equity investments with

readily determinable fair value. The Series B Stock will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by HC Realty.

The following table summarizes the Company’s investment in HC Realty as of

March 31, 2019

and

December 31, 2018 (

in thousands):

	Ownership %						Investment in Affiliate Balance				Loss recorded in the Consolidated Statements of Operations (b)
											For the Three Months Ended March 31,
	March 31, 2019			December 31, 2018			March 31, 2019		December 31, 2018		2019			2018

HC Realty Series B Stock (a)		7.2	%		0.0	%	$	2,000		-	$	-			-
HC Realty common stock		9.9	%		0.0	%		2,940		-		(19	)		-
Total		17.1	%		0.0	%	$	4,940		-	$	(19	)		-

(a)

Represents investments in shares of HC Realty preferred stock with a basis of

million. Each share of preferred stock can be converted into

one

share of HC Realty common stock at a conversion price equal to the lesser of

$9.10

per share or the fair market value per share of HC Realty common stock, subject to adjustment upon the occurrence of certain events.

(b)

Loss from these investments is included in “Loss from affiliate” in the consolidated statement of operations. Since HC Realty is a Real Estate Investment Trust and

not

a taxable entity, the loss is

not

reported net of taxes.

The Company’s investment in HC Realty common stock is accounted for under the equity method of accounting. The company determined that accounting for under the equity method was appropriate even though the Company owns less than

20%

of the fully diluted shares outstanding because the Company holds significant influence of HC Realty. Additional information for the Company’s investment in HC Realty follows:

HC Realty was formed in

2016

as a Maryland corporation, and incident to filing its federal income tax return for, and commencing with, its fiscal year ended

December 31, 2017,

elected to be taxed as a REIT for federal income tax purposes. HC Realty was formed primarily to source, acquire, own and manage built-to-suit or improved-to-suit, single-tenant properties leased by the United States of America and administered by the U.S General Services Administration or directly by the occupying agency, both of which are referred to as “GSA Properties.” HC Realty invests primarily in GSA Properties across secondary and smaller markets with sizes ranging from

5,000

50,000

rentable square feet, and in their listed lease term after construction or improvement to post-

9/11

standards. HC Realty further emphasizes GSA Properties that fulfill mission critical or citizen service functions. Leases associated with the GSA Properties in which HC Realty invests are full faith and credit obligations of the United States of America.

HC Realty’s principal objective is the creation of value for stockholders by utilizing its relationships and knowledge of GSA Properties, specifically, the acquisition, management and disposition of GSA Properties. On

December 31, 2018,

HC Realty’s had a portfolio of

GSA Properties, including

three

GSA Properties for which HC Realty owns all of the rights to the profits, losses, any distributed cash flow and all of the other benefits and burdens of ownership for federal income tax purposes rather than a fee simple interest.

The GSA-leased, real estate asset class has a number of attributes that HC Realty believes will offer its stockholders significant benefits, including a highly creditworthy and very stable tenant base, long-term lease structures and low risk of tenant turnover. GSA leases are backed by the full faith and credit of the United States, and the GSA has never experienced a financial default. Payment of rents under GSA leases are funded through the Federal Buildings Fund and are

not

subject to direct federal appropriations, which can fluctuate with federal budget and political priorities. In addition to presenting reduced risk of default, GSA leases typically have long initial terms of

ten

years with renewal leases having terms of

five

ten

years, which limit operational risk. Upon renewal of a GSA lease, base rent typically is reset based on a number of factors at the time of renewal, including inflation and the replacement cost of the building, that generally HC Realty expects will increase over the life of the lease.

GSA-leased properties generally provide attractive investment opportunities but require specialized knowledge and expertise. Each U.S. Government agency has its own customs, procedures, culture, needs and mission, which results in different requirements for its leased space. Furthermore, the GSA-leased sector is highly fragmented with a significant amount of non-institutional owners, who lack HC Realty’s infrastructure and experience with GSA-leased properties. Moreover, while there are a number of national real estate brokers that hold themselves out as having GSA-leased property expertise, there are

national or regional clearinghouses for GSA-leased properties. HC Realty believes this fragmentation can be ascribed particularly to the U.S. Government’s – including GSA’s –procurement policies, including policies of preference for small, female and minority owned businesses. As of

August 2015,

the largest owner of GSA-leased properties owned approximately

3.5%

of the GSA-leased properties on a rent per square foot (RSF) basis, and the

ten

largest owners of GSA-leased properties collectively owned approximately

17%

of the GSA-leased properties by RSF. Long-term relationships and specialized institutional knowledge regarding the agencies, their space needs and the hierarchy and importance of a property to its tenant agency are crucial to understanding which agencies and properties present the greatest likelihood of long-term agency occupancy, and, therefore, to identifying and acquiring attractive GSA-leased properties. HC Realty’s portfolio is diversified among occupancy agencies, including a number of the largest and most essential agencies, such as the Drug Enforcement Administration, the Federal Bureau of Investigation, the Social Security Administration and the Department of Transportation.