UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________

FORM 10-Q

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xQuarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016March 31, 2017

 ¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 333-207711

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HARTMAN vREIT XXI, INC.
(Exact name of registrant as specified in its charter)

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(713) 467-2222
(Registrant’sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1— Organization

and Business

Hartman vREIT XXI, Inc. (the “Company”“Company”) was formed on September 3, 2015 as a Maryland corporation and intends to qualify as a real estate investment trust (“REIT”(“REIT”).  The Company expects to use the proceeds from its initial public offering to invest in a portfolio of commercial real estate properties that offer a blend of current and potential income based on in place occupancy plus relatively significant potential for growth in income and value from re-tenanting, repositioning or redevelopment.  As discussed in Note 3,8, the Company was initially capitalized by the sale of 22,100 shares of common stock, at an issue price of $9.05 per share, to Hartman Advisors, LLC, an affiliate of the Company’sCompany’s Sponsor (as defined below) on September 30, 2015.  The Company’sCompany’s fiscal year end is December 31.  The Company has not yet begun operations and therefore has not presented a consolidated statement of operations.

Effective June 24, 2016, the Company commenced its initial public offering (the “Offering”) of up to a maximum of $250,000,000 in shares of its common stock to the public in its primary offering at $10.00 per share, with discounts available to certain purchasers, and up to $19,000,000 in shares of its common stock to its stockholders pursuant to its distribution reinvestment plan (the “DRP”“DRP”) at $9.50 per share. The Company may reallocate

On February 6, 2017, the Company’s amended registration statement on Form S-11, providing for its public offering of up to $269,000,000 in shares betweenof Class A common stock and Class T common stock, was declared effective by the primary offeringSEC and the DRPCompany commenced offering shares of our Class A and Class T common stock.  In its initial public 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 its discretion.  In addition,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 Company’sdistribution 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, in its sole discretion, change the price at which the Company offers shares to the public in the primary offering or pursuant to its stockholders pursuant to the DRPdistribution reinvestment plan to reflect changes in the Company’s estimated value per share and other factors that the Company’s board of directors deems relevant.

Pursuant to the terms of the Offering,Company’s initial public offering (the “Offering”), subscription proceeds arewere held in an escrow account until the Company raisesraised the minimum offering amount of $1,000,000. As of September 30,On December 1, 2016, the Company had not raised the minimum offering amount and the subscription proceeds held in escrow had not beenas of that date were released to the Company.

The Company’sCompany’s advisor is Hartman XXI Advisors, LLC (the “Advisor”“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’sCompany’s sponsor (“Sponsor”and property manager (“Sponsor” or “Property Manager”).  Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company’sCompany’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.

Substantially all of the Company’sCompany’s business will be conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership (the “OP”“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”Holdings”), and Hartman vREIT XXI SLP LLC (“(“SLP LLC”LLC”), a wholly owned subsidiary of Hartman Advisors, LLCLLC.  SLP LLC has invested $1,000 in the OP in exchange for a separate class of limited partnership interests (the “Special“Special Limited Partnership Interests”Interests”).  As the Company accepts subscriptions for shares, it will transfer substantially all of 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“publicly traded partnership”partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal“Internal Revenue Code”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

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

incurred by the OP in acquiring and operating real properties, the OP will pay all of the Company’sCompany’s administrative costs and expenses and such expenses will be treated as expenses of the OP.

As of March 31, 2017, the Company had received and accepted investors’ subscriptions for and issued 575,365 Class A shares, including 1,230 shares issued as stock distributions, and 741 shares issued pursuant to our distribution reinvestment plan, and 11,458 Class T shares of its common stock pursuant to the Offering, resulting in gross offering proceeds of $5,689,299.

Note 2 — 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, 20152016 are derived from the Company’sour audited

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

consolidated balance sheetfinancial statements as of that date.  The unaudited consolidated financial statements as of September 30, 2016March 31, 2017 have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”(“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 basis.with the annual audited consolidated financial statements. The 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 September 30,March 31, 2017, and the results of its consolidated operations for the three months ended March 31, 2017 and 2016, the consolidated statement of stockholders’ equity for the three months ended March 31, 2017 and the consolidated statements of cash flows for the ninethree months ended September 30, 2016March 31, 2017 and 2016.  The results of the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the period from inception, September 3, 2015 to September 30, 2015.year ending December 31, 2017.

The Company’sconsolidated 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, 2016.

The Company’s consolidated financial statements include the Company’sCompany’s accounts and the accounts of the OP, Hartman Village Pointe, 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, 2017 and December 31, 2016 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 and due from (to) related parties.  The Company considers the carrying value 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

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

borrowing rates currently available to the Company for loans with similar terms, the carrying value of its note 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. Accrued rents are included in accrued rent and accounts receivable, net.  In accordance with Accounting Standards Codification (“ASC”) 605-10-S99, Revenue Recognition, 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. Cost recoveries from tenants are included in tenant reimbursement and other revenues in the period the related costs are incurred.

Investment in Unconsolidated Joint Venture

The Company’s investment in unconsolidated joint venture was accounted for under the equity method at December 31, 2016.

On November 14, 2016, the Company contributed $100,000 to Hartman Village Pointe LLC in exchange for an initial 2.65% membership interest in Hartman Village Pointe.  Hartman XX LP, an affiliate of the Company, contributed $3,675,000 to Hartman Village Pointe in exchange for an initial 97.35% membership interest in Hartman Village Pointe.  Hartman Village Pointe acquired a fee simple interest in the Village Pointe Property from an unrelated third party seller for a purchase price of $7,050,000, exclusive of closing costs.  The purchase price was funded with members’ capital and a mortgage loan in the amount of $3,525,000 from Hartman XX LP.  

On December 1, 2016, the Company acquired an additional 33.11% membership interest in Hartman Village Pointe from Hartman XX LP in exchange for $1,250,000 in cash. As of December 31, 2016, the Company’s total equity investment in Hartman Village Pointe was $1,350,000, representing an approximate 35.76% membership interest.

On January 19, 2017 the Company acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash, on January 25, 2017 the Company acquired an additional 5.30% membership interest in Hartman Village Pointe from Hartman XX LP for $200,000 in cash, on February 1, 2017 the Company acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash, and finally on February 8, 2017 the Company acquired an additional 16.56% membership interest in Hartman Village Pointe from Hartman XX LP for $625,000 in cash.

As of January 19, 2017, the Company owed 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 owns all of Hartman Village Pointe.

Real Estate

Allocation of Purchase Price of Acquired Assets

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 our 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.

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.  Any difference between the fair value of the property acquired and the purchase price of the property is recorded as goodwill or gain on acquisition of the property.  

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.

The Company has early adopted ASU No. 2017-01, “Clarifying the Definition of a Business.”  In accordance with the guidance provided by this accounting pronouncement, provided that the acquisition of real estate is determined to be the acquisition of an asset versus the acquisition of a business, the allocation of purchase price will not include an allocation to intangible assets, in particular in-place lease value.  Further, the Company will capitalize acquisition fees and expenses associated with real estate asset acquisitions versus recording such fees as an expense in the period incurred in connection with the acquisition of a business.  The effect of adoption in the accompanying consolidated financial statements, is that the acquisition fee payable to advisor in the amount of $33,750 for the year ended December 31, 2016 and $142,500 for the three months ended March 31, 2017, which would have been expensed if the acquisition of our joint venture investment and subsequent purchase of the equity interest of our former joint venture partner were considered an acquisition of a business, have been capitalized and added to the unconsolidated joint venture investment and real estate assets at cost as of December 31, 2016 and March 31, 2017, respectively.

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.

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 our real estate assets as of March 31, 2017.

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

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. There is no allowance for doubtful accounts as of March 31, 2017 and December 31, 2016. 

Organization and Offering Costs

OrganizationPrior to achieving the minimum offering amount of $1,000,000, organization and offering costs of the Company arewere incurred by Advisor on behalf of the Company and, accordingly, are not a direct liability of the Company as of September 30, 2016 and December 31, 2015, respectively, and are not recorded in the accompanying consolidated balance sheets.Company.  Such costs will include legal, accounting, printing and other offering expenses, including marketing, salaries and direct expenses of the Advisor’sAdvisor’s employees and employees of the Advisor’sAdvisor’s affiliates and others.  Under the terms of the advisory agreement between the Company and the Advisor, upon the satisfaction of the minimum offering amount and the release to the Company of all subscription proceeds held in escrow, the Company willwould be obligated to reimburse the Advisor for organization and offering costs incurred by Advisor in connection with the Offering.  InEffective December 31, 2016, the eventadvisory agreement between the Company and the Advisor was amended to provide that the minimum offering amount is not achieved within one yearliability of the dateCompany to the Advisor for reimbursement of offering and organization costs of the commencement of the Offering, the Offering will terminate and the Company will have no obligation to reimburse Advisor for organization and offering costs incurred by the Advisor on behalfprior to completion of the Company. Theminimum offering, shall not be reimbursable to the Advisor until the Company’s receipt of gross offering proceeds in its initial public offering is $10,000,000.  As of March 31, 2017, the Advisor has incurred organization and offering costs of $460,312 and $222,685 as$782,130 on behalf of September 30, 2016 and December 31, 2015, respectively.the Company.  The Advisor will not be reimbursed for organization and offering costs to the extent that such reimbursement would cause the total organizational and offering costs incurred by the Company (including selling commissions, dealer manager fees and all other underwriting compensation) to exceed 15% of the aggregate gross proceeds from the sale of the shares of common stock sold in the Offering. Any such reimbursement will not exceed the actual costs and expenses incurred by Advisor.  When recorded by the

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Company, organization costs will be expensed as incurred, and offering costs, which include selling commissions, dealer manager fees and all other underwriting compensation, will be deferred and charged to stockholder’sstockholders’ equity as such amounts are reimbursed or paid toby the Advisor, the dealer manager or their affiliates from the gross proceeds of the Offering.

Financial InstrumentsAdvertising

The Company expenses advertising costs as incurred and such costs are included in general and administrative expenses in the accompanying consolidated balance sheets includestatements of operations.  Advertising costs totaled $3,420 and $0 for the following financial instrument: cashthree months ended March 31, 2017 and cash equivalents.  The Company considers the carrying value to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization.  2016, 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 in which the Company raises the minimum offering amount in the Offering.ending 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.

The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  The Company records a valuation allowance for net deferred tax assets that are not expected to be realized.

For the three months ended March 31, 2017 and 2016, the Company had net income of $38,516 and $0, 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.

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 as of March 31, 2017 and December 31, 2016, respectively.

Earnings Per Share

The computations of basic and diluted 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 10.  For the three months ended March 31, 2017 and 2016, there were no shares issuable in connection with these potentially dilutive securities.  These potentially dilutive securities were excluded from the computations of diluted net income per share for the three months ended March 31, 2017 and 2016 because no shares are issuable.

Concentration of Risk

       The Company maintains cash accounts in one U.S. financial institution.  The terms of these deposits are on demand to minimize risk.  The balances of these accounts may exceed the federally insured limits.  No losses have been incurred in connection with these deposits.

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Major tenants are defined as those tenants which individually comprise more than 10% of the Company’s total rental revenues.  The following four individual tenants of the Village Pointe property each represent more than 10% of total rental revenues for the three months ended March 31, 2017:

Cash and Cash EquivalentsRecent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, “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. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. We have begun to evaluate each of our revenue streams under the new model. Based on preliminary assessments, we do not expect the adoption of ASU No. 2014-09 to have a material effect on our consolidated financial position or our consolidated results of operations.

All highly liquid investments with original maturitiesIn January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of three months or less are consideredFinancial Assets and Liabilities,” 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. ASU No. 2016-01 is effective for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-01 to have a material effect on our consolidated financial position or our consolidated results of operations.

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.

In October 2016, the FASB issued ASU No. 2016-17, “Interest Held Through Related Parties That Are Under Common Control,” 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. We have adopted this guidance for all periods presented.

In November 2016, the FASB issued ASU No. 2016-18, “Classification of Restricted Cash,” which addresses the Statement of Cash Flow classification and presentation of restricted cash equivalents.  Cashtransactions. ASU No. 2016-18 is effective for our fiscal year commencing on January 1, 2018. The effect of this amendment is to be applied retrospectively and cash equivalents asearly adoption is permitted. We expect to adopt ASU No. 2016-18 for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of September 30, 2016 and December 31, 2015 consistASU No. 2016-18 to have a material effect on our consolidated financial position or our consolidated results of demand deposits at a commercial bank.operations.

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 — Capitalization– Real Estate

On December 1, 2016, the Company acquired an additional 33.11% membership interest in Hartman Village Pointe from Hartman XX LP in exchange for $1,250,000 in cash. As of December 31, 2016, the Company’s total equity investment in Hartman Village Pointe was $1,350,000, representing an approximate 35.76% membership interest.

UnderOn January 19, 2017 the Company’s Articles of Amendment and Restatement (as amended and restated, the “Charter”), acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash; on January 25, 2017 the Company hasacquired an additional 5.30% membership interest in Hartman Village Pointe from Hartman XX LP for $200,000 in cash; on February 1, 2017 the authority to issue 900,000,000 sharesCompany acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash; and finally on February 8, 2017 the Company acquired an additional 16.56% membership interest in Hartman Village Pointe from Hartman XX LP for $625,000 in cash.

As of common stock, $0.01 per share par value, classifiedJanuary 19, 2017, the Company owned more than 50% of Hartman Village Pointe and designated as 800,000,000 shares of common stock, 50,000,000 shares of Class A common stock, 50,000,000 shares of Class T common stock,that date, and 50,000,000 shares of preferred stockfrom that point forward  Hartman Village Pointe is included in these consolidated financial statements.

The Company re-measured its interest, with a parcarrying value of $0.01 per share.  On September 30, 2015,$3,764,024.  The acquisition date fair value of the previous equity interest in the joint venture was $3,761,830.  Therefore, we recognized a loss of $2,194 as a result of revaluing our 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 Company’s 2017 property acquisition as of the respective acquisition date:

The Company’s real estate assets consisted of the following:

Depreciation expense for the three months ended March 31, 2017 and 2016 was $20,016 and $0, respectively.

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HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Acquisition fees incurred were $142,500 and $0 for the three months ended March 31, 2017 and 2016, 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 $10,575 and $0 for the three months ended March 31, 2017 and 2016, respectively.  Asset management fees are captioned as such in the accompanying consolidated statements of operations for the three months ended March 31, 2017 and 2016, respectively.  

Note 4 — Accrued Rent and Accounts Receivable, net

Accrued rent and accounts receivable, net, consisted of the following:

As of March 31, 2017 and December 31, 2016, the Company sold 22,100 shareshad no allowances for uncollectible accounts respectively and no bad debt expense has been recorded.

Note 5 — Note Payable, net

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 common stock tothe acquisition, on February 8, 2017, of Hartman Village Pointe, LLC were $65,195.  The interest rate is one-month LIBOR plus 2.75%. The interest rate as at March 31, 2017 was 3.7328%.

Interest expense for the three months ended March 31, 2017 and 2016 was $29,281 and $0, respectively, including $3,725 and $0 of deferred loan cost amortization.  Interest expense of $6,142 and $0 was payable as of March 31, 2017 and December 31, 2016, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Note 6 — Related Party Arrangements

The Advisor is a wholly owned subsidiary of Hartman Advisors LLC, at a purchase priceTexas 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 $9.05 per share for an aggregate purchase priceHartman Income REIT Management, LLC, which is wholly owned by Hartman Income REIT, Inc. and Subsidiaries of $200,005, which was paid in cash.  The Company’s board of directors is authorized to amend the Charter, without the approvalapproximately 16% of the Company’s stockholders, to increasevoting stock is owned by Allen R. Hartman who is the aggregate numberChief Executive Officer and Chairman of authorized sharesthe Board of capital stock or the number of shares of any class or series that the Company has authority to issue.

Note 4—Related Party ArrangementsDirectors.

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’sCompany’s real estate investments.  In addition, in

15

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 6 (“10 (“Special Limited Partnership Interest”Interest”) below. 

The Advisor will receive reimbursement for organizational and offering expenses incurred on the Company’sCompany’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 salesselling 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 $176,250 were earned by the Advisor as a result of the interests acquired in Hartman Village Pointe.

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, 2017 and 2016.

The Company will pay Hartman Income REIT Management, Inc. (“HIRM”(“HIRM”), an affiliate of the Advisor, property management fees equal to (i) 5% of the effective gross revenues of the managed properties for the management of retail centers, warehouse, industrial and flex properties and (ii) 3% or 4% of the effective gross revenues for office buildings, as applicable based upon the square footage and gross property revenues of the office buildings.  The Company also expects to pay HIRM 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’sCompany’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.  HIRM may subcontract the performance of its property management and leasing duties to third parties and HIRM 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 HIRM on the Company’sCompany’s behalf, including the wages and salaries and other employee-related expenses of all employees of HIRM 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

7

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 Charter.

If HIRM provides construction management services related to the improvement or finishing of tenant space in the Company’sCompany’s real estate properties, the Company will pay 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’sCompany’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 will pay 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’sCompany’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

16

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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’sCompany’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’sCompany’s average invested assets (as defined in the Charter), or (2) 25% of the Company’sCompany’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’sCompany’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’sCompany’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors.

For the three months ended March 31, 2017 and 2016, the Company incurred property management fees and reimbursable costs of $5,528 and $0 payable to the Property Manager and asset management fees of $10,575 and $0 payable to the Advisor.

As of March 31, 2017, the Company had $5,478 due to the Advisor and $79,236 due from Hartman Short Term Income Properties XX, Inc. and $26,645 due from other Hartman affiliates.  As of December 31, 2016, the Company had $19,107 due to the Advisor.

Mr. Jack Cardwell, an independent director, and his affiliates, have invested $1,265,000 for the purchase of 140,292 Class A common shares in the Company. As of March 31, 2017, he and his affiliates owned approximately 23% of the company’s outstanding stock. As a result, Mr. Cardwell recused himself from the vote and the other directors voted to accept his subscription.

Note 57 — Earnings Per Share

       Basic earnings per share is computed using net income attributable to common stockholders and the weighted average number of common shares outstanding.  

Note 8 – Stockholders’ Equity

Under the Company’s Articles of Amendment and Restatement (as amended and restated, 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.

17

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2017 and 2016, the Company granted 0 shares of restricted common stock to independent directors as compensation for services.  The Company recognized $0 stock-based compensation expense for the three months ended March 31, 2017 and 2016, based upon the offering price of $10.00 per common share.  

Distributions

On December 1, 2016, the Company’s board of directors authorized and declared the payment of cash and stock distributions to the Company’s stockholders (collectively, the “Distribution”). The Distribution will (i) accrue daily to the Company’s stockholders of record as of the close of business on each day commencing on December 1, 2016, (ii) be payable in cumulative amounts on or before the 20th day of each calendar month with respect to the prior month, (iii) with respect to the cash distribution, be calculated at a rate of $0.0015068 per share of the Company’s common stock per day, a rate which, if paid each day over a 365-day period, is equivalent to a 5.5% annualized cash distribution rate based on a purchase price of $10.00 per share of the Company’s common stock, and (iv) with respect to the stock distribution, be calculated at a rate of 0.000547945 common shares of the Company’s common stock per day, a rate which, if paid each day over a 365-day period, is equivalent to a 2.0% annualized stock distribution rate based on a purchase price of $10.00 per share of the Company’s common stock.  Distributions declared as of March 31, 2017 and December 31, 2016 and payable in April 2017 and January 2017, respectively, are included accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Distribution with respect to the Company’s Class T common shares will be declared at the same annualized distribution rate as Class A common shares.  The daily cash distribution rate and the daily Class T common stock distribution rate will be based on a purchase price of $9.60 per Class T common share.  The cash distribution rate for Class T common shares will be reduced by the applicable prorated amount of the shareholder servicing fee applicable to Class T common shares.

18

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table reflects the total distributions the Company has paid, including the total amount paid and amount paid per common share, in each indicated quarter:

19

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 — Incentive Plans

The Company has adopted a long-term incentive plan (the “Incentive“Incentive Award Plan”Plan”) that provides for the grant of equity awards to employees, directors and consultants and those of the Company’sCompany’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’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’sCompany’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’sCompany’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 Companyhas adoptedan independent directors’directors’ compensation plan (the “Independent“Independent Directors Compensation Plan”Plan”) pursuant to which each of the Company’sCompany’s independent directors will be entitled, subject to the plan’splan’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’sCompany’s board of directors will receive a grant of 3,000 shares of restricted stock upon his or her election to the Company’sCompany’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’sdirector’s service as a director due to his or her death or disability, or (2) a change in control of the Company.  No awards have been granted under either the Incentive Award Plan or the Independent Directors Compensation Plan as of September 30,March 31, 2017. The Company recognized stock based compensation expenses of $0 with respect to the independent director compensation for the three months ended March 31, 2017 and 2016.

8

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 610 —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’sOP’s net sales proceeds from the disposition of assets, but only after the Company’sCompany’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 or 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’sCompany’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’sCompany’s advisory agreement with the Advisor (“(“Advisory Agreement”Agreement”) other than by the Company for “cause”“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’sCompany’s shares of common stock or a termination of the Advisory Agreement other than by the Company for cause, the Special Limited

20

HARTMAN vREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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’sholder’s discretion, in the form of (i) limited partnership interests in the OP, (ii) shares of the Company’sCompany’s common stock, or (iii) a non-interest bearing promissory note. If the event triggering the redemption is a listing of the Company’sCompany’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’sCompany’s shares for a specified period. If the event triggering the redemption is an underwritten public offering of the Company’sCompany’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’sCompany’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.

Note 11 – 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.

Note 12 – Subsequent Events

Joint Venture Investment

On April 11, 2017, the Company entered into a membership interest purchase agreement with Hartman XX Limited Partnership (“Hartman XX LP”), 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 LP, the Company may acquire up to $10,000,000 of the membership interest of Hartman XX LP in Hartman Three Forest Plaza, LLC (“Three Forest Plaza LLC”).

On April 11, 2017, the Company acquired 160,000 membership units for $1,600,000 representing an approximately 9.0% interest in the members’ equity of Hartman Three Forest Plaza LLC.  On May 18, 2017, the Company acquired an additional 130,000 membership units of Hartman Three Forest Plaza LLC, representing an additional 7.3% interest in the members’ equity of Hartman Three Forest Plaza LLC, from Hartman XX LP for $1,300,000.  The Company paid for the membership units acquired with proceeds from the Company’s initial public offering.

9

Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The following discussion and analysis should be read in conjunction withAs used herein, the accompanying financial statements ofterms “we,” “us” or “our” refer to Hartman vREIT XXI, Inc. and, the notes thereto.Unless theas required by context, otherwise requires, all references in this report to “we,” “us” or “our” are to Hartman vREIT XXI Inc.Operating Partnership L.P., which we refer to as our “operating partnership,” and their respective subsidiaries.

Forward-Looking Statements

         This Quarterly ReportCertain statements included in this quarterly report on Form 10-Q contains forward-looking(this “Quarterly Report”) that are not historical facts (including statements including discussionconcerning investment objectives, other plans and analysisobjectives of our financial condition and other matters, whichmanagement for future operations or economic performance, or assumptions, or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements are only predictions. We caution that forward-looking statements are not historical facts but are the intent, beliefguarantees.  Actual events on our investments and results of operations could differ materially from those expressed or current expectations of our management based on its knowledge and understanding of our business and industry. implied in any forward-looking statements.  Forward-looking statements are typically identified by the use of terms such as “may,“may,” “will,“should,” “should,“expect,” “potential,“could,” “predicts,“intend,” “anticipates,“plan,” “expects,“anticipate,” “intends,“estimate,” “plans,“believe,” “believes,“continue,” “seeks,“predict,” “estimates”“potential” or the negative of such terms and variationsother comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of these wordswhich are difficult or impossible to predict accurately and similar expressions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, somemany of which are beyond our control,control. Although we believe that the expectations reflected in such forward-looking statements are difficult to predict and could causebased on reasonable assumptions, our actual results toand performance could differ materially from those expressed or forecastedset forth in the forward-looking statements.

          Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this Quarterly Reporthave a material adverse effect on Form 10-Q include:our operations and future prospects include, but are not limited to:

·

our ability to raise capital in our ongoing public offering;

·

our ability to effectively deploy the proceeds raised in our public offering;

·

our ability to identify and acquire real estate and real estate-related assets on terms that are favorable to us;

·

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;

·

the fact that we pay fees and expenses to our advisor and its affiliates that were not negotiated on an arm’s length basis and the fact that the payment of these fees and expenses increases the risk that our stockholders will not earn a profit on their investment in us;

·

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

·

	●	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.

Any of the assumptions underlying the forward-looking statements included herein could be inaccurate. You are cautioned not to placeinaccurate, and undue reliance onshould not be placed upon any forward-looking statements included in this Quarterly Report on Form 10-Q.herein. All forward-looking statements are made as of the date of this Quarterly Report, on Form 10-Q and the risk that actual results will

9

HARTMAN VREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

differ materially from this Quarterly Report on Form 10-Qthe expectations expressed in this Quarterly Report on Form 10-Qherein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made after the date of this Quarterly Report, on Form 10-Q, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the

All forward-looking statements included in this Quarterly Report on Form 10-Q, including, without limitation,should be read in light of the risks described under “Risk Factors,”factors identified in the inclusion“Risk Factors” section of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterlyour Annual Report on Form 10-Q will be achieved.10-K for the year ended December 31, 2016, filed with the SEC on March 31, 2017.

Overview

We are a recently formed as a Maryland corporation on September 3, 2015 that intends to acquire, develop and operate a diverse portfolio of value-oriented commercial properties, including office, retail, industrial and warehouse properties, located primarily in Texas. We intend to acquire properties in which there is a significant potential for growth in income and value from re-tenanting, repositioning, redevelopment, and operational enhancements. We believe that real estate, and in particular commercial real estate, provides an excellent investment for those investors looking for diversification, income and wealth preservation and growth in their portfolio. We believe that we have significant experience in acquiring and managing these types of properties, largely through our relationships with our sponsor and other affiliates.

On June 24, 2016, our registration statement on Form S-11, registering our initial public offering of up to $269,000,000 in shares of our common stock, was declared effective by the SEC. SEC, and we commenced our initial public offering. On January 9, 2017, we amended our charter to (i) designate our authorized shares of common stock as Class A shares of common stock and Class T shares of common stock and (ii) convert each share of our common stock outstanding as of date of the amendment to our charter into a share of our Class A common stock.  On February 6, 2017, our amended registration statement on Form S-11, providing for our public offering of up to $269,000,000 in shares of our Class A common stock and Class T common stock, was declared effective by the SEC and we commenced offering shares of our Class A and Class T common stock.  

In our initial public offering, we are offering to the public up to $250,000,000 in any combination of shares of our Class A and Class T common stock and up to $19,000,000 in shares of our Class A and Class T common stock to our stockholders pursuant to our distribution reinvestment plan.  

We are offering our Class A common stock to the public at an initial price of $10.00 per share and up to $19,000,000 in shares of common stock to our stockholders pursuant to our distribution reinvestment plan at an initial price of $9.50 per share. share for Class A common stock purchased pursuant to our distribution reinvestment plan.  

We are offering our Class T common stock to the public at an initial price of $9.60 per share and to our stockholders at an initial price of $9.12 per share for Class T common stock purchased pursuant to our distribution reinvestment plan.  

Our board of directors may, in its sole discretion and from time to time, change the price at which we offer shares to the public in the primary offering or pursuant to our distribution reinvestment plan to reflect changes in our estimated value per share and other factors that our board of directors deems relevant. If we revise the price at which we offer our shares of common stock based upon changes in our estimated value per share, we do not anticipate that we will do so more frequently than quarterly. Our estimated value per share will be approved by our board of directors and calculated by our advisor based upon current available information which may include valuations of our assets obtained by independent third party appraisers or qualified independent valuation experts.

Pursuant to the termsAs of March 31, 2017, we had accepted subscriptions for, and issued 575,365 shares of our initial public offering, all subscription proceeds we receive will be held in an escrow account,Class A common stock, including 1,230 shares issued as stock distributions, and we will not sell any741 shares issued pursuant to our distribution reinvestment plan, and 11,458 shares of our Class T common stock in our initial public offering, until we raise the minimumresulting in gross offering amountproceeds of $1,000,000 (including shares purchased by our affiliates).$5,689,299. As of September 30, 2016, we had not raised the minimum offering amount and therefore had not yet sold anyMarch 31, 2017, $244,317,741 in shares of our Class A and Class T common stock or commenced operations. If we do not raise the minimum offering amount by June 24, 2017, we will terminateremained to be sold in our initial public offering, and promptly return all funds in the escrow account.excluding shares available under our distribution reinvestment plan.  We intend to offer shares of our common stock on a continuous basis until June 24, 2018, provided that we may extend the offering period until June 24, 2019 (three years from the date of the commencement of our initial public offering) unless extended. However, in certain states the offering may continue for only one year unless we renew the offering period for an additional year. We reserve the right to terminate our initial public offering at any time. D.H. Hill Securities, LLLP is the dealer manager for our initial public offering and is responsible for the distribution of our common stock in our initial public offering.

Hartman XXI Advisors, LLC, an affiliateour advisor, manages our day-to-day operations and our portfolio of our sponsor, is our advisor.properties and real estate-related assets, subject to certain limitations and restrictions. Subject to certain restrictions and limitations, our advisor manages our day-to-day operations and our portfolio of properties and real estate-related assets. Our advisor sources and presents investment opportunities to our board of directors. Our advisor also provides investment management, marketing, investor relations and other administrative services on our behalf.

Substantially all of our business will be conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership, which we refer to as our operating partnership. We are the sole general partner of our operating partnership and Hartman vREIT XXI Holdings LLC, and Hartman vREIT XXI SLP, LLC, our affiliates of our advisor, are the initial limited partners of our operating partnership. As we accept subscriptions for shares of our common stock, we will transfer substantially all of the net proceeds of the offering to our operating partnership as a capital contribution. The limited partnership agreement of our operating partnership provides that our operating partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that our

10

operating partnership will not be classified as a “publicly“publicly traded partnership”partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended, which classification could result in our operating partnership being taxed as a corporation rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and operating our investments, our operating partnership will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of our operating partnership. We will experience a relative increase in liquidity as additional subscriptions for shares of our common stock are received and a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets.

We do not anticipate establishing a general working capital reserve out ofintend to use the net proceeds offrom our initial public offering duringto continue to acquire commercial real properties located primarily in Texas.

We intend to qualify as a real estate investment trust, or REIT, under the initial stages of the offering; however, we may establish capital reserves from offering proceedsInternal Revenue Code beginning with respect to particular investments as required by our lenders or as determined by our advisor. We also may, but are not required to, establish annual cash reserves out of cash flow generated by our investments or out of net cash proceeds from the sale of our investments.

To the extent that any working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing. In addition, subject to certain limitations set forth in our charter and described in the prospectus relating to our initial public offering, we may incur indebtedness in connection with the acquisition of any investment property, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financing or refinancing in additional properties.

taxable year ending December 31, 2017. If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders.  If we fail to qualify as a REIT in any taxable year after the taxable year in which we initially elect to be taxed as a REIT, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for

treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied.  Failing to qualify as a REIT could materially and adversely affect our net income.

Factors Which May Influence Results of OperationsInvestment Objectives and Strategy: Hartman Advantage

Economic Conditions Affecting

       Our Targeted Portfolioprimary investment objectives are to:

Adverse economic conditions affecting

·

realize growth in the geographic regions in which we plan to invest or real estate generally may have a material impact on our capital resources and the revenue or income to be derived from the operationvalue of our commercial property investments.

Offering Proceeds

Our ability to make investments will depend upon the net proceeds raised in our initial public offering and our ability to finance the acquisition of such assets. If we raise substantially less than the maximum offering amount, we will make fewer investments resulting in less diversification in terms of the number of investments owned, resulting in fewer sources of income. In such event, the likelihood of our profitability being affected by the performance of any one of our investments will increase. In addition, if we are unable to raise substantial funds, our fixed operating expenses, as a percentage of gross income, would be higher, which could affect our net income and results of operations.investments;

As of September 30, 2016 we have received one common stock subscription representing escrowed proceeds of $11,000.  No shares of our common stock will be sold in our initial public offering until such time as we have received qualified subscriptions·

preserve, protect and subscription proceeds totaling at least $1,000,000.return stockholders’ capital contributions; and

Sarbanes-Oxley Act·

The Sarbanes-Oxley Act of 2002, as amended, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, have increased the costs of compliance with corporate governance, reporting and disclosure practices which are now required of us. These costs may have a material impact on our results ofgrow net cash from operations and could impact our ability to pay distributions to our stockholders.

11

HARTMAN VREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to payregular cash distributions to our stockholders.

We cannot assure our stockholders that we will achieve these objectives.

The cornerstone of our investment strategy is our advisor’s discipline in acquiring a portfolio of real estate properties, specifically properties that are located in Texas, that offer a blend of current and potential income based on in place occupancy plus relatively significant potential for growth in income and value from re-tenanting; repositioning or redevelopment.  We refer to this strategy as “value add” or the “Hartman Advantage.”

We rely upon the value add or Hartman Advantage strategy to evaluate numerous potential commercial real estate acquisition and investment opportunities per completed acquisition or investment.

We do not anticipate that there will be any market for our shares of common stock unless they are listed on a national securities exchange.  In addition,the event that our shares of common stock are not listed or traded on an established securities exchange prior to the tenth anniversary of the completion or termination of our initial public offering, our charter requires that the board of directors must seek the approval of our stockholders of a plan to liquidate our assets, unless the board of directors has obtained the approval of our stockholders (1) to defer the liquidation of our assets or (2) of an alternate strategy.

We believe that we have sufficient capital to meet our existing debt service and other operating obligations for the next year and that we have adequate resources to fund our cash needs. However, our operations are subject to a variety of risks, including, but not limited to, changes in national economic conditions, the restricted availability of financing, changes in demographic trends and interest rates and declining real estate valuations. As a result of these laws, rules and regulations create new legal grounds and theories for potential administrative enforcement, civil and criminal proceedings against us in case of non-compliance, thereby increasinguncertainties, there can be no assurance that we will meet our investment objectives or that the risks described above will not have an adverse effect on our properties or results of liabilityoperations.

Our Real Estate Investments

Our investments in real estate assets consist of a retail shopping center located in San Antonio, Texas commonly known as Village Pointe, or the Village Pointe Property, and potential sanctions against us.subsequent to March 31, 2017 our real estate investments also include our joint venture investment interest in an office building located in Dallas, Texas commonly known as Three Forest Plaza, or the Three Forest Plaza Property. We expect thathold our effortsinterest in the Three Forest Plaza Property through Hartman Three Forest Plaza, LLC, or Hartman Three Forest, a joint venture between our company and Hartman XX Limited Partnership, the operating partnership of our affiliate, Hartman Short Term Income Properties XX, Inc.

The Village Pointe Property

Property Acquisition

On November 14, 2016, we acquired a minority ownership interest in Hartman Village Pointe, LLC, or Hartman Village Pointe, a joint venture between our company and Hartman XX Limited Partnership, or Hartman XX LP. Hartman Village Pointe owns the Village Pointe Property. Subsequent to complyour initial investment in Hartman Village Pointe, we incrementally acquired all of Hartman XX LP’s remaining membership interests in Hartman

Village Pointe and as a result, as of February 8, 2017, we had acquired 100% ownership of Hartman Village Pointe. We paid cash consideration of $3,775,000 for our 100% ownership interest in Hartman Village Pointe.

An acquisition fee of approximately $176,250 was earned by our Advisor in connection with these laws and regulations will continue to involve significant and potentially increasing costs, and our failure to comply could resultinvestment in fees, fines, penalties or administrative remedies against us.the Village Pointe Property.

Critical Accounting Policies

General

BelowThe Village Pointe Property is secured by a discussion of the accounting policies that we believe will be critical to us once we commence operations. We consider these policies critical because they involve significant judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities$3,525,000 mortgage loan.  The mortgage loan bears interest at the rate of 30-day LIBOR plus a LIBOR rate margin of 2.75%.  The interest rate as of March 31, 2017 is 3.73%.  Monthly payments of interest only are payable during the initial loan term.  The initial maturity date of the mortgage loan is December 14, 2019.  The mortgage loan provides for first and second extended maturity dates of December 14, 2020 and 2021, respectively, subject to the applicable extended maturity provisions of the mortgage loan agreement.

Description of Property

The Village Pointe Property is a 54,246 square foot shopping center located just off of US Highway 281 between Brook Hollow Boulevard and Thousand Oaks in San Antonio, Texas.  Built in 1982 and renovated in 2015, the Village Pointe Property is located within five miles of San Antonio International Airport via US Highway 281.  

As of March 31, 2017, the Village Pointe Property was approximately 92% occupied by 11 tenants. The Village Pointe Property is managed by our property manager.

Three Forest Plaza Joint Venture

Joint Venture

On December 22, 2016, Hartman XX LP, through its wholly-owned subsidiary, Hartman Three Forest Plaza LLC, acquired a fee simple interest in a office building located in Dallas, Texas commonly referred to as “Three Forest Plaza.” Three Forest Plaza was acquired by Hartman Three Forest Plaza LLC from Massachusetts Mutual Life Insurance Company for a purchase price of $35,655,000, exclusive of closing costs and liabilities assumed.  

On April 11, 2017, we entered into a membership interest purchase agreement with Hartman XX LP pursuant to which we may acquire up to $10,000,000 of Hartman XX LP’s ownership interest in Hartman Three Forest Plaza LLC. On April 11, 2017, pursuant to the membership interest purchase agreement, we acquired 160,000 membership units of Hartman Three Forest Plaza LLC, representing an approximately 9% membership equity interest in Hartman Three Forest Plaza LLC, from Hartman XX LP for $1,600,000.  We funded the purchase of the membership units we acquired with proceeds from our initial public offering. Pursuant to the membership interest purchase agreement we may from time to time, in our discretion, purchase additional portions of Hartman XX LP’s ownership interest in Hartman Three Forest Plaza LLC, up to an aggregate purchase price of $10,000,000, which would represent an aggregate ownership interest in Hartman Three Forest Plaza LLC of approximately 56%

Description of Property

Three Forest Plaza is a 19-story suburban office building comprising approximately 366,549 square feet that was built in 1983. As of March 31, 2017, Three Forest Plaza was 76% occupied by 42 tenants, including three roof-top tenants.

REIT Compliance

We will be electing under Section 856(c) of the Internal Revenue Code to be taxed as a REIT beginning with the taxable year ending December 31, 2017.  As a REIT we generally are not subject to federal income tax on income that we distribute to our stockholders.  If we fail to qualify as a REIT in any taxable year after the year in which we initially elected to be treated as a REIT, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely

affect our net income. However, we believe that we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and the reported amounts of revenuerelated notes, require us to make estimates and expenses during the reporting periods. If our management’s judgment orassumptions that are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions and other factors related to the facts and circumstances relatingongoing viability of our customers.  With different estimates or assumptions, materially different amounts could be reported in our consolidated financial statements. There have been no material changes to various transactions is different, it is possible that differentour critical accounting policies will be applied or different amounts of assets, liabilities, revenues and expenses will be recorded, resulting in a different presentation of the financial statements or different amounts reportedestimates as set forth in the financial statements. Additionally, other companies may utilize different estimates that may impactAnnual Report for the comparability of our results of operations to those of companies in similar businesses. year ended December 31, 2016.See also  Note 2 to our consolidated financial statements in this Quarterly reportReport on Form 10-Q for a discussion of our significantcurrently adopted accounting policies.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2017 versus March 31, 2016.

As of March 31, 2017, we owned one commercial property comprising approximately 54,246 square feet located in San Antonio, Texas. This property was acquired from Hartman Short Term Income Properties XX, Inc. on February 8, 2017.  As of March 31, 2016, we owned no commercial properties.

Revenues – The primary source of our revenue is rental revenues and tenant reimbursements.  For the three months ended March 31, 2017 and 2016 we had total rental revenues and tenant reimbursements of $175,105 and $0, respectively. The increase in total rental revenues and tenant reimbursements was primarily due to the fact that we did not own any property as of March 31, 2016, as compared to the one property we owned as of March 31, 2017.

Operating expensesAllocation – Operating expenses consist of Purchase Priceproperty operating expenses (contract services, repairs and maintenance, utilities and management fees); real estate taxes and insurance; and asset management fees.  For the three months ended March 31, 2017 and March 31, 2016 we had operating expenses of Acquired Assets$66,568 and $0 respectively.  The increase in operating expenses is primarily due to the fact that we did not own any property as of March 31, 2016, as compared to the one property we owned as of March 31, 2017.

 Fees to affiliates – We pay acquisition fees and asset management fees to our advisor in connection with the acquisition of properties and management of our company.  Asset management fees to our advisor were $10,575 and $0 for the three months ended March 31, 2017 and March 31, 2016, respectively.  Acquisition costs related to the acquisition of our properties were $142,500 for the three months ended March 31, 2017 and $0 for the three months ended March 31, 2016. The increase in acquisition fees and asset management fees is attributable to the one property we acquired on February 8, 2017. We pay property management and leasing commissions to our Property Manager in connection with the management and leasing of our properties.  For the three months ended March 31, 2017 and March 31, 2016 we incurred $5,528 and $0, respectively, for property management fees and $0 and $0, respectively, for leasing commissions.

Real estate taxes and insurance – Real estate taxes and insurance were $31,292 and $0 for the three months ended March 31, 2017 and 2016, respectively. The increase in cost is owing to the one property we acquired in the three months ended March 31, 2017 and no property owned in the three months ended March 31, 2016.

Depreciation and amortization – Depreciation and amortization were $20,016 and $0 for the three months ended March 31, 2017 and 2016, respectively. The increase in cost is owing to the one property we acquired in the three months ended March 31, 2017 and no property owned in the three months ended March 31, 2016.

General and administrative expenses - General and administrative expenses were $21,529 and $0 for the three months ended March 31, 2017 and 2016, respectively.  General and administrative expenses consist primarily of audit fees, transfer agent fees, other professional fees, and independent director compensation. The increase in cost

is owing to the one property we acquired in the three months ended March 31, 2017 and no property owned in the three months ended March 31, 2016.We expect general and administrative expenses to increase only modestly in future periods as we acquire additional real estate and real estate related assets.  We expect general and administrative expenses to decrease substantially as a percentage of total revenue.

Organizational and offering costs – Effective December 31, 2016, the advisory agreement between us and the Advisor was amended to provide that our liability to the Advisor for reimbursement of offering and organization costs incurred by the Advisor prior to completion of the minimum offering, shall not be reimbursable to the Advisor until we are in receipt of gross offering proceeds in its initial public offering is $10,000,000.  As of March 31, 2017, the Advisor has incurred organization and offering costs of $782,130.  The Advisor will not be reimbursed for organization and offering costs to the extent that such reimbursement would cause the total organizational and offering costs incurred by us (including selling commissions, dealer manager fees and all other underwriting compensation) to exceed 15% of the aggregate gross proceeds from the sale of the shares of common stock sold in the Offering. Any such reimbursement will not exceed the actual costs and expenses incurred by Advisor.  When recorded by us, organization costs will be expensed as incurred, and offering costs, which include selling commissions, dealer manager fees and all other underwriting compensation, will be deferred and charged to stockholders’ equity as such amounts are reimbursed or paid by the Advisor, the dealer manager or their affiliates from the gross proceeds of the Offering.

Net income –We generated net income of $38,516 and $0 for the three months ended March 31, 2017 and 2016, respectively.  Net income for the three months ended March 31, 2017 is primarily attributable to the rental income, attributed to the one property we acquired in the three months ended March 31, 2017 and no property owned in the three months ended March 31, 2016.

Funds From Operations and Modified Funds From Operations

 UponFunds From Operations, or FFO, is a non-GAAP financial measure defined by the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, which we believe is an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or REIT in conjunction with net income.  FFO is used by the REIT industry as a supplemental performance measure.  FFO is not equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper.  The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.  Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed.  We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative.  Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time.  An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset.  Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred.  While impairment charges are

excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.

Historical accounting for real estate involves the use of GAAP.  Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP.  Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of the our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.  However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance.  The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses.  Management believes these fees and expenses do not affect our overall long-term operating performance.  Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation.  While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We intend to use the remaining net proceeds raised in our follow-on offering to continue to acquire properties, and intend to begin the process of achieving a liquidity event (i.e., the listing of our common stock on a national exchange, a merger or sale or our company or another similar transaction) within ten years of the completion of our initial public offering.  The Investment Program Association, or “IPA,” an industry trade group, has standardized a measure known as Modified Funds From Operations, or “MFFO,” which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above.  MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended.  We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (i.e., the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place.  By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our public offering has been completed and our properties have been acquired.  We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry.  Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our public offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our public offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010.  The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and

expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.  The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses.  We do not currently exclude amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests.  Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income.  These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors.  All paid and accrued acquisition fees and expenses negatively impact our policyoperating performance during the period in which properties are acquired and will have negative effects on returns to allocateinvestors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property.  Accordingly, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired.  MFFO that excludes such costs and expenses would only be comparable to acquired tangiblenon-listed REITs that have completed their acquisition activities and have similar operating characteristics to us.  Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities.  In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets consistingas non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of landon-going operations and buildings,are therefore typically adjusted for when assessing operating performance.  The purchase of properties, and identified intangible assetsthe corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and liabilities, consistingcash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by the advisor if there are no further proceeds from the sale of shares in our public offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter.  As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner.  We believe that our use of above-marketMFFO and below-market leases,the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors.  For example, acquisitions costs are funded from the remaining net proceeds of our public offerings and other valuefinancing sources and not from operations.  By excluding expensed acquisition costs, the use of in-place leases and leasehold improvements and value of tenant relationships, based in each case on their fair values. We will utilize internal valuation methods to determine the fair valuesMFFO provides information consistent with management’s analysis of the tangible assetsoperating performance of the properties.  Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance.  By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO

the same way, so comparisons with other REITs may not be meaningful. FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an acquired property (which includes landalternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of its liquidity, or indicative of funds available to fund its cash needs including its ability to make distributions to its stockholders.  FFO and buildings).MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.    MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed.  FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO.  In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and as a result we may have to adjust our calculation and characterization of FFO or MFFO.

The fair valuestable below summarizes our calculation of above-marketFFO 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 ratesMFFO for the corresponding in-place leasesthree months ended March 31, 2017 and below-market renewal options, which is generally obtained from independent appraisals, measured over2016 and a period equalreconciliation of such non-GAAP financial performance measures 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.our net loss.

Distributions

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,following table summarizes the distributions we declared in cash and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements,stock 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 our distribution reinvestment plan for the in-place leases overperiod from December 2016 (the month we first paid distributions) through March 31, 2017:

(1)

Distributions are paid on a market absorption periodmonthly basis. Distributions for a similar lease. Customer relationships are valued based on expected renewalall record dates of a lease orgiven month are paid    approximately 20 days following the likelihoodend of obtaining a particular tenant for other locations. These intangibles are includedsuch month.

(2)

Amount of distributions paid in real estate assets in the consolidated balance sheetsshares of common stock pursuant to our distribution reinvestment plan and are being amortized to expense over the remaining term of the respective leases.stock dividend distribution.

For the three months ended March 31, 2017, we declared aggregate distributions of $78,714, including distributions paid in shares of common stock pursuant to our distribution reinvestment plan.  During the same period, cash used in operating activities was $98,646 and our FFO was $58,532. For the three months ended March

12

The determination31, 2017, 100% of distributions were paid from cash provided by offering proceeds.  For the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of our reported net loss.

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 calculated on terms of all of the leases in-place when acquired.

 Impairment

       We will review our 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.  We will determine 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.  

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 ofthree 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.

Results of Operations

ended March 31, 2016, no distributions were paid.  During the period from our inception (September 3, 2015) to September 30, 2016,March 31, 2017, net cash used by operating activities was $90,679, our net loss was $9,721 and our FFO was $10,295.  For a discussion of how we have not yet satisfied the minimum offering amountcalculate FFO, see “Management’s Discussion and Analysis of $1,000,000Financial Condition and Results of Operations—Funds From Operations and Modified Funds From Operations.”

Liquidity and Capital Resources

 As of March 31, 2017, we had issued 575,365 shares of our Class A and Class T common stock in our initial public offering, and commencedincluding 741 shares of our initial public offering, and therefore had not yet commenced real estate operations. As a result, we have had no results of operations for the period from our inception to September 30, 2016 or for the three and nine-month periods ended September 30, 2016. Given our inception date, there was no comparable period for us during 2015.

Pursuantcommon stock pursuant to our advisory agreement with our advisordistribution reinvestment plan, and the dealer manager agreement with our dealer manager, we are obligated to reimburse our advisor, our dealer manager or their affiliates,1,230 shares as applicable, for organization and offering costs associated with our initial public offering, provided that our advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee and other organization and offering costs incurred by us exceed 15% of ourstock distribution resulting in aggregate gross offering proceeds. In the event we do not raise the minimum offering amount of $1,000,000 by June 24, 2017, we will terminate our initial public offering and will have no obligation to reimburse our advisor, our dealer manager or their affiliates for any organization and offering costs. As of and for the period from inception to September 30, 2016, our advisor and its affiliates have incurred organization and offering costs of $460,312 on our behalf. These costs are not recorded in our consolidated financial statements because such costs are not a liability to us until we raise the minimum offering amount in our initial public offering and commence our initial public offering, and such costs will only become a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of our initial public offering.$5,689,299.

Liquidity and Capital Resources

Our principal demanddemands for funds are and will continue to be to acquire investments in accordance with our investment strategy, to payfor real estate and real estate-related acquisitions, for the payment of operating expenses, andfor the payment of interest on our outstanding indebtedness, and for the payment of distributions. Generally, we expect to make distributions to our stockholders. Over time, we intend to generally fund ourmeet cash needs for items other than asset acquisitions from operations. Otherwise, weour cash flow from operations; provided, that some or all of our distributions have been and may continue to be paid from sources other than cash from operations (as discussed below).  We expect thatto meet cash needs for acquisitions from the remaining net proceeds of our principal sources of working capital will include:follow-on offering and from financings.

13

HARTMAN VREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

current cash balances;

•

public offeringsSome or all of our securities;

•

various forms of secured financing;

•

equity capitaldistributions have been and may continue to be paid from joint venture partners;

•

proceeds from our distribution reinvestment plan; and

•

cash from operations.

Over the short term, we believe that our sources of capital, specifically our cash balances,other than cash flow from operations, including proceeds of our abilitypublic offerings, cash advances to raise equity capitalus by our advisor, cash resulting from joint venture partnersa waiver of asset management fees and borrowings secured by our ability to obtain various formsassets in anticipation of secured financing, will be adequate to meet our liquidity requirementsfuture operating cash flow.  We may have little, if any, cash flow from operations available for distribution until we make substantial investments and capital commitments.

Over the longer term, inthose investments stabilize.  In addition, to the same sources ofextent our investments are in development or redevelopment projects or in properties that have significant capital we will rely on to meet our short-term liquidity requirements, we may also utilize additional secured and unsecured financings and equity capital from joint venture partners. We may also conduct additional public offerings. We expect these resources will be adequate to fund our operating activities, debt service and distributions, and will be sufficient to fund our ongoing acquisition activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments.

If we raise substantially less funds in our initial public offering than the maximum offering amount, we will make fewer investments resulting in less diversification and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses as a public REIT, regardless of whether we are able to raise substantial funds in our initial public offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.distributions may be negatively impacted, especially during our early periods of operation.

We currently haveuse, and intend to use in the future, secured and unsecured debt to acquire properties and make other investments.  As of March 31, 2017, our outstanding secured debt is $3,525,000. There is no outstanding debt.limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment.  Under our charter, we are prohibited from borrowing in excess of 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors and if such excess is disclosed to the stockholders in the next quarterly report along with the explanation for such excess borrowings.  Our board of directors has adopted a policy to limit our aggregate borrowings to approximately 50% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Such limitation, however, does not apply to individual real estate assets and only will apply once we have ceased raising capital in our public offering and invested substantially all of our capital.  As a result, we expect to borrow more than 50% of the contract purchase price of each real estate asset we acquire to the extent our board of directors determines that borrowing these amounts is prudent.

Our advisor may, but is not required to, establish capital reserves from remaining gross offering proceeds, out of cash flow generated by operating properties and other investments or out of non-liquidating net sale proceeds from the sale of our properties and other investments.  Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions and major capital expenditures. Alternatively, a lender may require its own formula for escrow of capital reserves.

Potential future sources of capital include proceeds from additional private or public offerings of our securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations.  If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

Cash Flows from Operating Activities

As of March 31, 2017 we had continuing operations from one commercial real estate property.  During the three months ended March 31, 2017, net cash used in operating activities was $98,646 versus $0 net cash used in operating activities for the three months ended March 31, 2016. We expect cash flows from operating activities to increase in future periods as a result of additional acquisitions of real estate and real estate related investments.

Cash Flows from Investing Activities

During the three months ended March 31, 2017, net cash used in investing activities was $2,214,480 versus $0 for the three months ended March 31, 2016 and consisted of cash used for the investment in Village Pointe.

Cash Flows from Financing Activities

Cash flows from financing activities consisted primarily of proceeds from our ongoing public offering and distributions paid to our common stockholders.  Net cash provided by financing activities for the three months ended March 31, 2017 and 2016, respectively, was $4,003,525 and $0 and consisted of the following:

·

$4,404,759 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 $375,383;

·

$26,621 of cash distributions.

Contractual Commitments and Contingencies

We use, and intend to use in the future, secured and unsecured debt, as a means of providing additional funds for the acquisition of our properties and our real estate-related assets. We believe that the careful use of borrowings will help us achieve our diversification goals and potentially enhance the returns on our investments. Under our charter, we are prohibited from borrowing in excess of 300% of our net assets, which generally approximates to 75% of the aggregate cost of our assets, thoughassets. We may borrow in excess of this amount if such excess is approved by a majority of the independent directors and disclosed to stockholders in our next quarterly report, along with a justification for such excess. In such event, we may exceed this limit under certain circumstances.will monitor our debt levels and take action to reduce any such excess as practicable. Our aggregate borrowings are reviewed by our board of directors at least quarterly. As of March 31, 2017, our borrowings were not in excess of 300% of the value of our net assets.

In addition to making investments in accordance withusing our investment objectives,capital resources for investing purposes and meeting our debt obligations, we expect to use our capital resources to make certain payments to our advisor and its affiliates and our dealer manager. During our organization and offering stage, these payments will include payments to the dealer manager for sales commissions and the dealer manager fee and payments to our advisor for reimbursement of certain organization and offering expenses. However, our advisor has agreed to reimburse us to the extent that sales commissions, the dealer manager fee and other organization and offering expenses incurred by us exceed 15% of our gross offering proceeds. During our operating stage, weadvisor. We expect to make payments to our advisor or its affiliates in connection with the acquisitionselection and origination or purchase of real estate and real estate-related investments, the management of our assets, the management of the development or improvement of our assets and costs incurred by our advisor in providing services to us.

As of March 31, 2017, we had note payable totaling an aggregate principal amount of $3,525,000. For more information on our outstanding indebtedness, see Note 5 (Note Payable, net) to the consolidated financial statements included in this report.

The following is a summary of our contractual obligations as of March 31, 2017:

(1)

Amounts include principal payments only.

(2)

Projected interest payments are based on the outstanding principal amount and projected rate of 3.73% 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, 2017.

Off-Balance Sheet Arrangements

     As of September 30,March 31, 2017 and December 31, 2016, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

REIT ComplianceRecent Accounting Pronouncements

To qualify asBased on preliminary assessments, we do not expect the adoption of any recently issued but not yet effective or early-adopted accounting standards to have a REIT for federal income tax purposes, we will be required to distribute at least 90% of our REIT taxable income to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax)material effect on our taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during whichconsolidated financial position or our REIT qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our financial condition andconsolidated results of operations and our abilityoperations. See Note 2 to make distributionthe notes to our stockholders.

14

Distributions

We intend to make regular cash distributions to our stockholders, typically on a monthly basis. The actual amount and timing of distributions will be determined by our board of directors in its discretion and typically will depend on the amount of funds available for distribution, which is impacted by current and projected cash requirements, tax considerations and other factors. During the early stages of our operations, we may declare distributions in excess of funds from operations. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income��� each year. As of and for the period from inception to September 30, 2016, we have not paid any distributions.accompanying consolidated financial statements.

Related-Party Transactions and Agreements

We have entered into agreements with our advisor and its affiliates whereby we willhave paid, and may continue to pay, certain fees to, or reimburse certain expenses of, our advisor and its affiliates. See Item 13, “Certain Relationships and Related Transactions and Director Independence” in our Annual Report on Form 10-K for the year ended December 31, 2016 and Note 46 (Related Party Arrangements) to the consolidated financial statements included in this Quarterly Report for a discussion of the various related-party transactions, agreements and fees.

Review of our Investment Policies

Our board of directors, including our independent directors, has reviewed our investment policies as described in this Report and determined that such policies are in the best interests of our stockholders based on the following factors: (1) such policies increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) our executive officers and directors and the affiliates of our advisor have expertise with the type of real estate investments we seek; (3) there are sufficient property acquisition opportunities with the attributes that we seek; and (4) borrowings should enable us to purchase assets and earn income more quickly, thereby increasing the likelihood of generating income for our stockholders and preserving stockholder capital.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We maywill be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of our real estate assets in the future. Our interest rate risk management objectives will be to seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We may use derivative financial instrumentsTo achieve these objectives, we expect to hedge exposuresborrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to changes in interestconvert variable rates on loans secured by our real estate assets. We will be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interestfixed rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, our Advisorwe will assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Our Advisor will maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy will be designed to minimize the impact on our net income and funds from operations from changes in interest rates, the overall returns on your investment may be reduced. Our board of directors has not yet established formal policies and procedures regarding our use of derivative financial instruments for hedging or other purposes.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, as of September 30, 2016,March 31, 2017, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief

Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). In performing this evaluation, management reviewed the selection, application and monitoring of our historical accounting policies. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2016,March 31, 2017, these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported as and when required.

15

HARTMAN VREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended September 30, 2016March 31, 2017, in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

Not applicable.None.

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2017, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

During the three months ended March 31, 2017, we did not make any purchases of our equity securities, pursuant to our share redemption program or otherwise.

On June 24, 2016, our Registration Statement on Form S-11 (File No. 333-207711), registering our initial public offering of up to $269,000,000 in shares of our common stock, was declared effective by the SEC under the Securities Act of 1933, as amended, or the Securities Act, and we commenced our initial public offering. On January 9, 2017, we amended our articles of amendment and restatement, or our charter, to (i) designate our authorized shares of common stock as Class A shares of common stock and Class T shares of common stock and (ii) convert each share of our common stock outstanding as of date of the amendment to our charter into a share of our Class A common stock. On February 6, 2017, our amended registration statement on Form S-11 (File No. 333-207711), registering our public offering of up to $269,000,000 in shares of our Class A common stock and Class T common stock, was declared effective by the SEC and we commenced offering shares of our Class A and Class T common stock in our initial public offering.

We are offering to the public up to $250,000,000 in any combination of shares of our Class A and Class T common stock and up to $19,000,000 in shares of our Class A and Class T common stock to our stockholders pursuant to our distribution reinvestment plan.

As of March 31, 2017, the net offering proceeds to us from our initial public offering after deducting the total expenses incurred as described above, were $4,708,549 including $7,040 in offering proceeds from shares of our common stock to the public in our primary offering at $10.00 per share and up to $19,000,000 of shares of our common stockissued pursuant to our dividenddistribution reinvestment plan at $9.50 per share.

We may not sell any shares in our initial public offering until we have received gross subscription proceeds of $1,000,000. Pending satisfaction of this condition, all subscription payments will be placed in an account held by our escrow agent.  If we do not raise $1,000,000 in our public offering by June 24, 2017, we will promptly return all funds in the escrow account (including interest) to subscribers and we will stop selling our shares. Our public offering will terminate no later than June 24, 2018, unless extended.   

Duringplan. For the three months ended September 30, 2016,March 31, 2017, the ratio of the cost of raising capital to capital raised was approximately 8%.

We intend to use substantially all of the remaining net proceeds from our public offerings to continue to invest in a portfolio of real properties. As of March 31, 2017, we did not sell any equity securities that were not registeredhad used $3,775,000 of the net proceeds from our public offerings, plus debt financing, to purchase our initial commercial property. On April 11, 2017, we acquired 160,000 membership units for $1,600,000 under a joint venture between our company and Hartman XX Limited Partnership, the Securities Act and we did not repurchase anyoperating partnership of our securities.affiliate, Hartman Short Term Income Properties XX, Inc.

Item 3.

Defaults Upon Senior Securities

None.

Item 4. 

Mine Safety Disclosures

Not applicable.

Item 5. 

Other Information

None.

17

HARTMAN VREIT XXI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Item 6.  

Exhibits

*Filed herewith

18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HARTMAN vREIT XXI, INC.

Date:

November 14, 2016May 19, 2017

By: /s/ Allen R. Hartman

Allen R. Hartman,

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

Date:

November 14, 2016May 19, 2017

By: /s/ Louis T. Fox, III

Louis T. Fox, III,

Chief Financial Officer,

(Principal Financial and Principal Accounting Officer)

1938