Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Jun. 30, 2015 | |
Document and Entity Information: | ||
Entity Registrant Name | HARTMAN SHORT TERM INCOME PROPERTIES XX, INC. | |
Document Type | 10-K | |
Document Period End Date | Dec. 31, 2015 | |
Trading Symbol | hartman | |
Amendment Flag | false | |
Entity Central Index Key | 1,446,687 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 10,840,005 | |
Entity Public Float | $ 101,067,068 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,015 | |
Document Fiscal Period Focus | FY | |
Entity Incorporation, Date of Incorporation | Feb. 5, 2009 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
ASSETS | ||
Real estateInvestment property at cost | $ 189,706,604 | $ 115,927,596 |
Real estate investment property accumulated depreciation | (27,384,077) | (12,904,556) |
Real estate investment property at cost, net | 162,322,527 | 103,023,040 |
Cash and cash equivalents | 1,379,890 | 4,428,594 |
Restricted cash | 6,900,000 | 7,100,000 |
Accrued rent and accounts receivable, net | 2,750,279 | 1,388,420 |
Deferred lease commissions and loan costs, net | 3,825,602 | 2,802,175 |
Goodwill | 249,686 | 249,686 |
Due from related parties | 200,401 | |
Prepaid expenses and other assets | 1,389,980 | 1,444,319 |
Total assets | 179,018,365 | 120,436,234 |
LIABILITIES | ||
Note payable | 76,417,905 | 59,617,848 |
Accounts payable and accrued expenses | 9,367,432 | 4,940,892 |
Due to related parties | 507,604 | |
Tenants' security deposits | 1,325,928 | 797,842 |
Total liabilities | 87,111,265 | 65,864,186 |
Preferred stock, $0.001 par value, 200,000,000 convertible, non-voting shares authorized, 1,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively | 1 | 1 |
Common stock, $0.001 par value, 750,000,000 authorized, 7,373,416 shares and 6,311,691 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 13,769 | 8,047 |
Additional paid in capital | 128,336,583 | 74,996,481 |
Accumulated distributions and net loss | (36,443,253) | (20,432,481) |
Total stockholders' equity | 91,907,100 | 54,572,048 |
Total liabilities and total stockholders' equity | $ 179,018,365 | $ 120,436,234 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Revenues | ||
Rental revenues | $ 22,353,414 | $ 10,080,921 |
Tenant reimbursements and other revenues | 3,851,119 | 2,085,509 |
Total revenues | 26,204,533 | 12,166,430 |
Expenses | ||
Property operating expenses | 7,593,187 | 3,063,279 |
Asset management and acquisition fees | 2,764,031 | 1,950,177 |
Organization and offering costs | 963,331 | 463,655 |
Real estate taxes and insurance | 4,080,086 | 2,015,312 |
Depreciation and amortization | 14,479,521 | 6,625,755 |
General and administrative | 1,418,840 | 758,971 |
Interest expense | 3,393,096 | 1,704,146 |
Total expenses | 34,692,092 | 16,581,295 |
Net loss | $ (8,487,559) | $ (4,414,865) |
Basic and diluted loss per common share | ||
Loss attributable to common stockholders | $ (0.79) | $ (0.63) |
Weighted average number of common shares outstanding, basic and diluted | 10,733,833 | 7,035,337 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - 12 months ended Dec. 31, 2015 - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Distributions In Excess Of Net Income | Total |
Stockholders' equity, starting balance (value) at Dec. 31, 2014 | $ 1 | $ 8,047 | $ 74,996,481 | $ (20,432,481) | $ 54,572,048 |
Beginning balance - preferred Stock (shares) at Dec. 31 2014 at Dec. 31, 2014 | 1,000 | 1,000 | |||
Beginning balance - common Stock (shares) at Dec. 31 2014 at Dec. 31, 2014 | 8,047,132 | 8,047,132 | |||
Issuance of common shares, net of redemption (value) | $ 0 | $ 5,722 | 55,809,126 | 0 | $ 55,814,848 |
Issuance of common shares, net of redemption (shares) | 5,722,252 | 5,722,252 | |||
Selling commissions | 0 | $ 0 | (2,469,024) | 0 | $ (2,469,024) |
Dividends and distributions | 0 | 0 | 0 | (7,523,213) | (7,523,213) |
Net loss | 0 | 0 | 0 | (8,487,559) | (8,487,559) |
Stockholders' equity, ending balance at Dec. 31, 2015 | $ 1 | $ 13,769 | $ 128,336,583 | $ (36,443,253) | $ 91,907,100 |
Ending balance - preferred Stock (in shares) at Dec 31, 2015 at Dec. 31, 2015 | 1,000 | 1,000 | |||
Ending balance - common Stock (in shares) at Dec 31, 2015 at Dec. 31, 2015 | 13,769,384 | 13,769,384 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Cash flows from operating activities: | ||
Net loss | $ (8,487,559) | $ (4,414,865) |
Adjustments to reconcile net loss to cash provided by (used in) operating activities: | ||
Stock based compensation | 80,000 | 80,000 |
Depreciation and amortization expense | 14,479,521 | 6,625,755 |
Deferred loan and leasing commission costs amortization | 579,680 | 401,094 |
Bad debt provision | 276,205 | 14,972 |
(Increase) decrease accrued rent and accounts receivable | (1,638,064) | (884,515) |
Deferred leasing commmission costs | (1,049,311) | (1,083,268) |
(Increase) decrease prepaid expenses and other assets | 167,755 | (1,014,515) |
Increase (decrease) accounts payable and accrued expenses | 4,096,330 | 2,298,972 |
Increase (decrease) on due to related parties | (708,005) | 439,953 |
Increase (decrease) tenants' security deposits | 528,086 | 478,584 |
Net cash provided by (used in) operating activities | 8,324,638 | 2,942,167 |
Cash flows from investing activities: | ||
Acquisition deposit | 50,000 | (50,000) |
Increase in restricted cash | 200,000 | (7,100,000) |
Additions to real estate | (73,779,008) | (58,934,692) |
Net cash provide from (used in) investing activities | (73,529,008) | (66,084,692) |
Cash flows from financing activities: | ||
Dividend distributions paid in cash | (3,476,054) | (2,479,545) |
Payment of selling commissions | (2,469,024) | (836,415) |
Payment of deferred loan costs | (553,796) | (1,124,473) |
Borrowings under term loan notes | 60,087,573 | |
Repayments under term loan notes | (1,146,255) | (469,725) |
Borrowings under revolving credit facility | 42,831,311 | 22,644,050 |
Repayment of revolving credit advances | (24,885,000) | (24,944,050) |
Proceeds from issuance of common stock, net of redemption | 51,854,484 | 14,550,666 |
Net cash provided by (used in) financing activities | 62,155,666 | 67,428,081 |
Net change in cash | (3,048,704) | 4,285,556 |
Cash and cash equivalents, beginning of period | 4,428,594 | 143,038 |
Cash and cash equivalents, end of period | $ 1,379,890 | $ 4,428,594 |
Organization and Business
Organization and Business | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Organization and Business | Organization and Business Hartman Short Term Income Properties XX, Inc. (the Company), is a Maryland corporation formed on February 5, 2009. The Company elected to be treated as a real estate investment trust (REIT) beginning with the taxable year ending December 31, 2011. On February 9, 2010, the Company commenced its initial public offering to sell a maximum of $250,000,000 in shares of the Companys common stock to the public at a price of $10 per share and up to $23,750,000 in shares of common stock to the Companys stockholders pursuant to the Companys distribution reinvestment plan at a price of $9.50 per share. On April 25, 2013, the Company terminated its initial public offering. Effective July 16, 2013, the Company commenced its follow-on public offering of up to $200,000,000 in shares of its common stock to the public in its primary offering at a price of $10.00 per share and up to $19,000,000 in shares of its common stock to its stockholders pursuant to the Companys distribution reinvestment plan at a price of $9.50 per share. The offering price for shares offered in the follow-on offering was arbitrarily determined by the Companys board of directors. Effective March 31, 2016, the Company is terminating the offer and sale of our common shares to the public in its follow-on offering. The sale of shares of the Companys common stock to its stockholders pursuant to the Companys distribution reinvestment plan will continue until as late as July 16, 2016. As of December 31, 2015, the Company had issued 14,038,203 shares of common stock in its initial and follow-on public offerings, including 897,459 shares of common stock pursuant to the Companys distribution reinvestment plan, resulting in gross offering proceeds of $136,853,634. Total shares issued and outstanding as of December 31, 2015 included 44,875 shares of common stock issued as non-employee compensation to members of the Companys board of directors and certain executives of our Property Manager. The Company was originally a majority owned subsidiary of Hartman XX Holdings, Inc. Hartman XX Holdings, Inc. is a Texas corporation wholly owned by Allen R. Hartman. The Company sold 19,000 shares of common stock to Hartman XX Holdings, Inc. at a price of $10.00 per share. The Company has also issued 1,000 shares of the Companys convertible preferred stock to the Companys advisor, Hartman Advisors LLC (Advisor), at a price of $10.00 per share. The Advisor is owned 70% by Allen R. Hartman and 30% by Hartman Income REIT Management, Inc. (the Property Manager). The Property Manager is a wholly owned subsidiary of Hartman Income REIT, Inc. Allen R. Hartman, the Companys Chief Executive Officer and Chairman of the Board of Directors, beneficially owns approximately 20% of Hartman Income REIT, Inc. On April 11, 2014 the Company formed Hartman XX Limited Partnership, a Texas limited partnership (the Operating Partnership). On March 7, 2014 the Company formed Hartman XX REIT GP LLC, a Texas limited liability company, to serve as the sole general partner of the Operating Partnership. The Company are the sole limited partner of the Operating Partnership. The Companys single member interests in the Companys limited liability company subsidiaries are owned by the Operating Partnership or its wholly owned subsidiaries. Subject to certain restrictions and limitations, the Advisor is responsible for managing the Companys affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company pursuant to an advisory agreement (the Advisory Agreement) by and among the Company and Advisor. Management of the Companys properties is through the Property Manager. D.H. Hill Securities, LLLP was the dealer manager for the Companys public offering. These parties receive compensation and fees for services related to the offering and for the investment and management of the Companys assets. These entities will receive fees during the offering, acquisition, operational and liquidation stages. As of December 31, 2015 the Company owned 15 commercial properties comprising approximately 2,395,910 square feet plus three pad sites, all located in Texas. As of December 31, 2015, the Company owned seven properties located in Richardson, Arlington, and Dallas, Texas, six properties located in Houston, Texas and two properties located in San Antonio, Texas. As of December 31, 2014, the Company owned nine commercial properties comprising approximately 1,377,422 square feet plus three pad sites, all located in Texas. As of December 31, 2014, the Company owned four properties located in Richardson, Arlington, and Dallas, Texas, four properties located in Houston, Texas and one property located in San Antonio, Texas. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Summary of Significant Accounting Policies | Note 2 Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements as of December 31, 2015 and 2014 and for the years then ended have been prepared by the Company in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-K and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. These consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications The Company has reclassified certain prior fiscal year amounts in the accompanying consolidated financial statements in order to be consistent with the current fiscal year presentation. These reclassifications had no effect on the previously reported working capital or results of operations. 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 December 31, 2015 and 2014 consisted of demand deposits at commercial banks. Restricted Cash Restricted cash represents cash for which the use of funds is restricted by certain loan documents. As of December 31, 2015 and December 31, 2014, the Company had a restricted cash balance of $6,900,000 and $7,100,000, respectively, which represent amounts set aside as impounds to be disbursed to the Company (i) upon its achieving incremental occupancy and gross income thresholds at the Richardson Heights Property and the Bent Tree Green Property, and (ii) the completion of certain agreed upon capital repairs at the Cooper Street Property and the Mitchelldale Property. Restricted cash includes $6,500,000 of loan proceeds and $400,000 in cash, which have been deposited in escrow accounts with a loan servicer. Financial Instruments The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, 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 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 Companys 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 reimbursements and other revenue in the period the related costs are incurred. Real Estate Allocation of Purchase Price of Acquired Assets Upon the acquisition of real properties, it is the Companys policy to allocate the purchase price of properties to acquired tangible assets, consisting of land and buildings, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and leasehold improvements and value of tenant relationships, based in each case on their fair values. The Company utilizes internal valuation methods to determine the fair values of the tangible assets of an acquired property (which includes land and buildings). The fair values of above-market and below-market in-place lease values, including below-market renewal options for which renewal has been determined to be reasonably assured, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) an estimate of fair market lease rates for the corresponding in-place leases and below-market renewal options, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease and renewal option values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental revenue over the remaining expected terms of the respective leases. The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and managements consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases. The determination of 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 the Companys 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 in terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of the Companys real estate assets as of December 31, 2015 and 2014. 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 propertys future cash flow and fair value and could result in the overstatement of the carrying value of the Companys 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: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Directly or indirectly observable inputs, other than quoted prices in active markets. Level 3: Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions. Assets and liabilities measured at fair value are based on one or more of the following valuation techniques: Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Cost approach: Amount required to replace the service capacity of an asset (replacement cost). Income approach: Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models). The Companys 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 the Companys claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. Deferred Loan and Leasing Commissions Costs Loan costs are capitalized and amortized using the straight-line method over the terms of the loans, which approximates the interest method. Leasing commissions are capitalized and amortized using the straight-line method over the term of the related lease agreements. Goodwill Generally accepted accounting principles in the United States require the Company to test goodwill for impairment at least annually or more frequently whenever events or circumstances occur indicating goodwill might be impaired. The Company has the option to perform a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value is less than the carrying amount, or if the Company elects to bypass the qualitative assessment, the Company performs a two-step impairment test. In the first step, management compares its net book value of the Company to the carrying amount of goodwill at the balance sheet date. In the event net book value of the Company is less than the carrying amount of goodwill, the Company proceeds to step two and assesses the need to record an impairment charge. For the years ended December 31, 2015 and 2014, no goodwill impairment was recognized in the accompanying consolidated financial statements. Organization and Offering Costs The Company has incurred certain expenses in connection with organizing the company. These costs principally relate to professional and filing fees. For the years ended December 31, 2015 and 2014, such costs totaled $963,331 and $463,655, respectively, which have been expensed as incurred. Pursuant to the Advisory Agreement, the Company is obligated to reimburse Advisor and its affiliates, as applicable, for organization and offering costs (other than selling commissions and the dealer manager fee) incurred on the Companys behalf associated with each of the Companys public offerings, but only to the extent that such reimbursements do not exceed actual expenses incurred by Advisor and would not cause the Companys total organization and offering expenses related to the Companys primary offering (other than selling commissions and the dealer manager fees) to exceed 1.5% of gross offering proceeds from the primary offering. Advisor and its affiliates will be responsible for the payment of organization and offering expenses (other than selling commissions and the dealer manager fee) to the extent they exceed 1.5% of gross offering proceeds from the primary offering. Pursuant to the Companys charter, in no event may organization and offering costs (including selling commissions and the dealer manager fees) incurred by the Company in connection with a completed public offering exceed 15.0% of the gross offering proceeds from the sale of the Companys shares of common stock in the completed public offering. As of December 31, 2015, the organization and offering costs incurred in connection with the Companys follow-on public offering did not exceed 15.0% of the gross offering proceeds from the sale of the Companys shares of common stock in the follow-on offering. As of December 31, 2015 and 2014 the offering and organizational expense incurred in excess of 1.5% of gross offering proceeds is $718,087 and $535,023, respectively. No demand has been made of the Advisor for reimbursement of such amounts as of December 31, 2015 and no receivable has been recorded with respect to the excess costs as of that date. Stock-Based Compensation The Company follows ASC 718- Compensation- Stock Compensation with regard to issuance of stock in payment of services. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. The compensation cost is measured based on the fair value of the equity or liability instruments issued. Advertising The Company expenses advertising costs as incurred and such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Advertising costs totaled $161,538 and $77,954 for the years ended December 31, 2015 and 2014, respectively. Income Taxes The Company has elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, beginning with its taxable year ended December 31, 2011. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Companys annual REIT taxable income to stockholders (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). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax 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 which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Companys net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and will operate in such a manner as to qualify for treatment as a REIT. For the years ended December 31, 2015 and 2014, the Company incurred a net loss of $8,487,559 and $4,414,865, respectively. The Company does not currently anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Companys 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. Loss Per Share The computations of basic and diluted loss per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Companys potentially dilutive securities include preferred shares that are convertible into the Companys common stock. As of December 31, 2015 and 2014, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net loss per share for the years ended December 31, 2015 and 2014 because no shares are issuable and inclusion of such potentially dilutive securities would have been anti-dilutive. 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. The geographic concentration of the Companys real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition or any other changes, could adversely affect the Companys operating results and its ability to make distributions to stockholders The sole tenant of the Gulf Plaza property represents 11.1% and 12.0% of the Companys rental revenues for the year ended December 31, 2015 and 2014, respectively. Recent Accounting Pronouncements ASU 2015-03, Interest Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs |
Real Estate
Real Estate | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Real Estate | Note 3 Real Estate Real estate assets consisted of the following: December 31, 2015 2014 Land $ 47,996,750 $ 26,829,000 Buildings and improvements 91,644,630 60,687,858 In-place lease value intangible 50,065,224 28,410,738 189,706,604 115,927,596 Less accumulated depreciation and amortization (27,384,077) (12,904,556) Total real estate assets $ 162,322,527 $ 103,023,040 Depreciation expense for the years ended December 31, 2015 and 2014 was $4,346,879 and $2,283,389, respectively. The Company identifies and records the value of acquired lease intangibles at the property acquisition date. Such intangibles include the value of acquired in-place leases and above and below-market leases. Acquired lease intangibles are amortized over the leases' remaining terms. With respect to all properties owned by the Company, the Company considers all of the in-place leases to be market rate leases. The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows: December 31, 2015 2014 In-place lease value intangible $ 50,065,224 $ 28,410,738 In-place leases accumulated amortization (18,728,241) (8,595,599) Acquired lease intangible assets, net $ 31,336,983 $ 19,815,139 The estimated aggregate future amortization amounts from acquired lease intangibles are as follows: Year ending December 31, In-place lease amortization 2016 $ 15,229,591 2017 11,865,795 2018 3,608,108 2019 388,925 2020 162,156 Thereafter 82,408 Total $ 31,336,983 Amortization expense for the year ended December 31, 2015 and 2014 was $10,132,641 and $4,342,366, respectively. As of December 31, 2015 the Company owned 15 commercial properties comprising approximately 2,395,910 square feet plus three pad sites, all located in Texas. As of December 31, 2015, the Company owned seven properties located in Richardson, Arlington, and Dallas, Texas, six properties located in Houston, Texas and two properties located in San Antonio, Texas. As of December 31, 2014 the Company owned nine commercial properties comprising approximately 1,377,422 square feet plus three pad sites, all located in Texas. As of December 31, 2014, the Company owned four properties located in Richardson, Arlington, and Dallas, Texas, four properties located in Houston, Texas and one property located in San Antonio, Texas. On May 1, 2015, the Operating Partnership acquired a nine building office complex comprising approximately 203,688 square feet located in Dallas, Texas, commonly known as Commerce Plaza Hillcrest (Commerce Hillcrest) through Hartman Hillcrest, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for an aggregate purchase price of $11,400,000, exclusive of closing costs. The Commerce Hillcrest property was approximately 63% occupied at the acquisition date. An acquisition fee of $285,000 was earned by the Advisor in connection with the purchase of the Commerce Hillcrest property. On May 8, 2015, the Operating Partnership acquired an office building comprising approximately 230,872 square feet located in Houston, Texas, commonly known as 400 North Belt (400 North Belt) through Hartman 400 North Belt, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for $10,150,000, exclusive of closing costs. The 400 North Belt property was approximately 64% occupied at the acquisition date. An acquisition fee of $253,750 was earned by the Advisor in connection with the purchase of the 400 North Belt property. On July 31, 2015, the Operating Partnership acquired an office building comprising approximately 158,451 square feet located in Houston, Texas, commonly known as Ashford Crossing (Ashford Crossing) through Hartman Ashford Crossing, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for $10,600,000, exclusive of closing costs. The Ashford Crossing property was approximately 87% occupied at the acquisition date. An acquisition fee of $265,000 was earned by the Advisor in connection with the purchase of the Ashford Crossing property. On August 24, 2015, the Operating Partnership acquired an office building comprising approximately 113,429 square feet located in Dallas, Texas, commonly known as Corporate Park Place (Corporate Park Place) through Hartman Corporate Park Place, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for $9,500,000, exclusive of closing costs. The Corporate Park Place property was approximately 81% occupied at the acquisition date. An acquisition fee of $237,500 was earned by the Advisor in connection with the purchase of the Corporate Park Place property. On September 2, 2015, the Operating Partnership acquired an office building comprising approximately 115,700 square feet located in Arlington, Texas, commonly known as Skymark Tower (Skymark Tower) through Hartman Skymark Tower, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for $8,846,000, exclusive of closing costs. The Skymark Tower property was approximately 78% occupied at the acquisition date. An acquisition fee of $221,150 was earned by the Advisor in connection with the purchase of the Skymark Tower property. On November 10, 2015, the Operating Partnership acquired an office building comprising approximately 196,348 square feet located in San Antonio, Texas, commonly known as One Technology Center (One Technology Center) through Hartman One Technology, LLC, a wholly owned indirect subsidiary of the Operating Partnership, for $19,575,000 exclusive of closing costs. The One Technology Center property was approximately 85% occupied at the acquisition date. An acquisition fee of $489,375 was earned by the Advisor in connection with the purchase of the One Technology Center property. The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Companys purchase price allocations of the Companys 2015 property acquisitions as of the respective acquisition dates: Commerce Plaza Hillcrest Ashford Crossing Corporate Park Place Skymark Tower One Technology Center Total 400 North Belt Assets acquired: Real estate assets $11,400,000 $10,150,000 $10,600,000 $9,500,000 $8,846,000 $19,575,000 $70,071,000 Liabilities assumed: Accounts payable and accrued expenses 74,049 640,057 722,809 137,942 121,657 116,978 1,813,492 Security deposits 129,284 54,808 90,307 70,705 62,850 93,434 501,388 Total liabilities assumed 203,333 694,865 813,116 208,647 184,507 210,412 2,314,880 Fair value of net assets acquired $11,196,667 $9,455,135 $9,786,884 $9,291,353 $8,661,493 $19,364,588 $67,756,120 On March 11, 2014, the Company acquired an office building comprising approximately 120,651 square feet located in Houston, Texas, commonly known as Gulf Plaza (the Gulf Plaza Property) through Hartman Gulf Plaza LLC (Gulf Plaza LLC), a wholly owned subsidiary of the Operating Partnership. The Gulf Plaza Property was acquired for $13,950,000, exclusive of closing costs, from fourteen tenant-in-common investors, including Hartman Gulf Plaza Acquisitions, LP (Acquisitions) which owned 1% of the Gulf Plaza Property. Acquisitions is an affiliate of our Property Manager, which indirectly owns approximately 15% of Acquisitions. The Gulf Plaza Property was 100% occupied at the acquisition date. An acquisition fee of $348,750 was earned by the Advisor in connection with the purchase of the Gulf Plaza Property. On June 13, 2014, the Operating Partnership acquired an office/industrial business park comprising approximately 377,752 square feet located in Houston, Texas, commonly known as Mitchelldale Business Park (the Mitchelldale Property) through Hartman Mitchelldale Business Park, LLC (Mitchelldale LLC), a wholly owned indirect subsidiary of the Operating Partnership. The Mitchelldale Property was acquired for $19,175,000, exclusive of closing costs, from an unrelated party. The Mitchelldale Property was approximately 89% occupied at the acquisition date. An acquisition fee of $479,375 was earned by the Advisor in connection with the purchase of the Mitchelldale Property. On December 30, 2014, the Operating Partnership acquired a two building office complex comprising approximately 180,119 square feet located in San Antonio, Texas, commonly known as Energy Plaza I & II (the Energy Plaza Property) through Hartman Energy, LLC (Energy LLC) a wholly owned subsidiary of the Operating Partnership. The Energy Plaza Property was acquired for $17,610,000, exclusive of closing costs, from an unrelated party. In connection with the acquisition of the Energy Plaza Property, Energy LLC assumed a securitized mortgage in the outstanding principal amount of $10,362,573. The Energy Plaza Property was approximately 95% occupied at the acquisition date. An acquisition fee of $440,250 was earned by the Advisor in connection with the purchase of the Energy Plaza Property. On December 30, 2014, the Operating Partnership acquired two suburban office buildings located in northwest Houston, Texas commonly known as the Copperfield Building (the Copperfield Building) and Timbercreek Atrium (the Timbercreek Atrium) comprising approximately 42,621 square feet and 51,035 square feet, respectively. The Copperfield Building and Timbercreek Atrium were acquired by Hartman Highway 6 LLC (Highway 6 LLC) a wholly owned subsidiary of the Operating Partnership for $5,316,000, exclusive of closing costs, from an unrelated party. The Copperfield Building and Timbercreek Atrium were each approximately 80% occupied at the acquisition date. An acquisition fee of $132,900 was earned by the Advisor in connection with the purchase of the Copperfield Building and Timbercreek Atrium. The following table summarizes the fair values of the assets acquired and liabilities assumed based upon our purchase price allocations of our 2014 property acquisitions as of the respective acquisition dates: Timbercreek/ Gulf Plaza Mitchelldale Energy Plaza Copperfield Total Assets acquired: Real estate assets $13,950,000 $19,175,000 $17,610,000 $5,316,000 $56,051,000 Other assets 112,316 102,268 681,960 - 896544 Total assets acquired 14,062,316 19,277,268 18,291,960 5,316,000 56,947,544 Liabilities assumed: Accounts payable and accrued expenses 292,347 219,548 443,142 71,613 1,026,650 Security deposits - 196,850 200,638 5,128 402,616 Note payable - - 10,362,573 - 10362573 Total liabilities assumed 292,347 416,398 11,006,353 76,741 11,791,839 Fair value of net assets acquired $13,769,969 $18,860,870 $7,285,607 $5,239,259 $45,155,705 Acquisition fees paid to Advisor were $1,751,775 and $1,401,275 for the years ended December 31, 2015 and 2014, respectively. Asset management fees paid to Advisor were $1,012,256 and $548,902 for the years ended December 31, 2015 and 2014, respectively. Asset management and acquisition fees are captioned as such in the accompanying consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively. The Companys indirect wholly owned subsidiary, Hartman Richardson Heights Properties, LLC (HRHP LLC), and the City of Richardson, Texas are parties to an economic development incentive agreement. Under the terms of the agreement, the City of Richardson will pay annual grants to HRHP LLC in equal installments over a five year period of up to $1.5 million and sales tax grants to be paid annually over the first 10 years of the Alamo Draft House lease. The Company has received installments of $300,000 in each of the years ended December 31, 2015 and 2014, respectively, which are included in tenant reimbursements and other revenues on the consolidated statements of operations. For the years ended December 31, 2015 and 2014, respectively, the Company received a sales tax grant of $63,662 and $43,379 pursuant to the economic development incentive agreement, which is included in tenant reimbursements and other revenues on the consolidated statements of operations. Payments received by the Company in the form of annual grants and annual sales tax grants are subject to refund or adjustment during the term of the economic development incentive agreement. In general the incentive agreement provides that the Company must continue to be in good standing with respect to the terms and conditions of the agreement and that the Alamo Draft House lessee must continue as a tenant of the Richardson Heights Property during the term of its lease agreement. As of December 31, 2015, no uncured breach or default exists under the terms of the incentive agreement and the Company has no liability or other obligation to repay any grants received under the agreement. The following unaudited pro forma consolidated financial information for the years ended December 31, 2015 and 2014 is presented as if the Company acquired the Gulf Plaza, Mitchelldale Business Park, Energy Plaza, Timbercreek Atrium, Copperfield Building, 400 North Belt, Commerce Plaza Hillcrest, Skymark Tower, Corporate Park Place, Ashford Crossing and One Technology Center on January 1, 2014. This information is not necessarily indicative of what the actual results of operations would have been had the Company completed the acquisition of Gulf Plaza, Mitchelldale Business Park, Energy Plaza, Timbercreek Atrium, Copperfield Building, 400 North Belt, Commerce Plaza Hillcrest, Skymark Tower, Corporate Park Place, Ashford Crossing and One Technology Center on January 1, 2014, nor does it purport to represent the Companys future operations: Years ended December 31, 2015 2014 Pro forma Revenue 34,924,583 30,807,539 Pro forma Net loss 8,907,832 12,777,855 |
Accrued Rent and Accounts Recei
Accrued Rent and Accounts Receivable, Net | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Accrued Rent and Accounts Receivable, Net | Note 4 Accrued Rent and Accounts Receivable, net Accrued rent and accounts receivable, net, consisted of the following: Years ended December 31, 2015 2014 Tenant receivables $ 1,178,121 $ 361,373 Accrued rent 2,065,301 1,243,985 Allowance for doubtful accounts (493,143) (216,938) Accrued Rents and Accounts Receivable, net $ 2,750,279 $ 1,388,420 As of December 31, 2015 and 2014, the Company had an allowance for uncollectible accounts of $493,143 and $216,938, respectively. For the years ended December 31, 2015 and 2014, the Company recorded bad debt expense of $276,205 and $14,972, respectively, related to tenant receivables that the Company have specifically identified as potentially uncollectible based on the Companys assessment of each tenants credit-worthiness. Bad debt expenses and any related recoveries are included in property operating expenses in the accompanying consolidated statements of operations. |
Deferred Loan and Leasing Commi
Deferred Loan and Leasing Commission Costs, Net | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Deferred Loan and Leasing Commission Costs, Net | Note 5 Deferred Loan and Leasing Commission Costs, net Costs which have been deferred consist of the following: Years ended December 31, 2015 2014 Deferred loan costs $ 1,726,420 $ 1,172,624 Less: deferred loan cost accumulated amortization (303,708) (106,256) Total cost, net of accumulated amortization $ 1,422,712 $ 1,066,368 Years ended December 31, 2015 2014 Deferred Leasing Commissions $ 3,006,203 $ 1,956,892 Less: deferred leasing commissions accumulated amortization (603,313) (221,085) Total cost, net of accumulated amortization $ 2,402,890 $ 1,735,807 |
Future Minimum Rents
Future Minimum Rents | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Future Minimum Rents | Note 6 Future Minimum Rents The Company lease the majority of its properties under noncancelable operating leases which provide for minimum base rentals. A summary of minimum future rentals to be received (exclusive of renewals, tenant reimbursements, and contingent rentals) under noncancelable operating leases in existence at December 31, 2015 is as follows: Year ending December 31, Minimum Future Rents 2016 27,718,333 2017 21,897,247 2018 15,051,613 2019 9,334,975 2020 6,222,438 Thereafter 16,710,434 Total $ 96,935,040 |
Notes Payable
Notes Payable | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Notes Payable | Note 7 Notes Payable The Company is a party to a $30.0 million revolving credit agreement (the TCB Credit Facility) with Texas Capital Bank. The borrowing base of the TCB Credit Facility may be adjusted from time to time subject to the lenders underwriting with respect to real property collateral. The TCB Credit Facility was secured by the Richardson Heights Property, the Cooper Street Property, the Bent Tree Green Property and the Parkway Property. On June 13, 2014, the Company entered into a modification agreement pursuant to which the Richardson Heights Property, the Cooper Street Property, and the Bent Tree Green Property were released as collateral for the TCB Credit Facility. On July 2, 2014, the Company entered into a further modification agreement of the TCB Credit Facility to add the Gulf Plaza Property as collateral and the borrowing base of the TCB Credit Facility, as further modified, was increased to $7.0 million. On January 23, 2015, the TCB Credit Facility was modified to add the Timbercreek and Copperfield properties as collateral and the borrowing base of the TCB Credit Facility was increased to $9.9 million. On November 10, 2015, the TCB Credit Facility was modified to include a property commonly known as One Technology Center to the borrowing base. As further modified, the borrowing base has increased to $20.925 million. The TCB Credit Facility note, as currently modified, bears interest at the greater of 4.25% per annum or the banks prime rate plus 1% per annum. The interest rate was 4.50% per annum as of December 31, 2015. All borrowings under the TCB Credit Facility mature on May 9, 2017. The outstanding balance under the TCB Credit Facility was $4,007,438 and $0 as of December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015 the amount available to be borrowed is $16,917,562. As of December 31, 2015, the Company was in compliance with all loan covenants. The Company is a party to a $15.525 million revolving credit agreement (the EWB Credit Facility) with East West Bank. The borrowing base of the EWB Credit Facility may be adjusted from time to time subject to the lenders underwriting with respect to real property collateral. The EWB Credit Facility is secured by the Commerce Plaza Hillcrest, Corporate Park and 400 North Belt properties. The EWB Credit Facility note bears interest at the greater of 3.75% per annum or the banks prime rate plus 0.50%. The interest rate was 4% per annum as of December 31, 2015. The loan matures on August 24, 2017. On October 13, 2015 the Company entered into a second revolving credit agreement with East West Bank (the EWB II Credit Facility). The borrowing base of the EWB II Credit Facility is $9.9 million and may be adjusted from time to time subject to the lenders underwriting with respect to the real property collateral. The EWB Credit Facility is secured by the Ashford Crossing and Skymark Tower properties. The EWB II Credit Facility note bears interest at the greater of 3.75% per annum or the banks prime rate plus 0.50%. The interest rate was 4.00% per annum as of December 31, 2015. The loan matures on August 24, 2017. The outstanding balance under the EWB Credit Facility and EWB II Credit Facility was $13,938,873 as of December 31, 2015. As of December 31, 2015 the amount available to be borrowed is $11,468,127. As of December 31, 2015, the Company was in compliance with all loan covenants. On June 13, 2014, the Company, through the Operating Partnership, entered into four term loan agreements with an insurance company, each loan being secured by a collateral property. Each of the loans secured by the Richardson Heights Property, the Cooper Street Property, the Bent Tree Green Property and the Mitchelldale Property require monthly payments of principal and interest due and payable on the first day of each month. Monthly payments are based on a 27 year loan amortization. Each of the loan agreements are subject to customary covenants, representations and warranties which must be maintained during the term of the loan agreements. As of December 31, 2015, we were in compliance with all loan covenants. Each of the loan agreements are secured by a deed of trust, assignment of licenses, permits and contracts, assignment and subordination of the management agreements and assignment of rents. The terms of the security instruments provide for the cross collateralization/cross default of the each of the loans. On December 30, 2014, Energy LLC and the Company entered into a loan assumption agreement by and among U.S. Bank National Association, as Trustee for Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2011-C-3, as lender; BRI 1841 Energy Plaza, LLC, as borrower; Ariel Bentata, as guarantor; Hartman Energy LLC, as buyer; and the Company, as the new guarantor. The loan in the original amount of $10,900,000 and dated May 20, 2011, is evidenced by a promissory note, a deed of trust, assignment of leases and rents and security agreement. The loan agreement provides for a fixed rate of 5.30% per annum. The outstanding balance of the loan assumed was $10,362,573. The loan maturity date is June 10, 2021. Monthly payments of principal and interest are due and payable on the tenth day of each month beginning January 11, 2015 until June 10, 2021 based on a 30 year loan amortization. The loan agreement is subject to customary covenants, representations and warranties which must be maintained during the term of the loan agreement. As of December 31, 2015, we were in compliance with all loan covenants. The loan agreement is secured by a deed of trust; assignment of licenses, permits and contracts; assignment and subordination of the management agreements; and assignment of rents. The following is a summary of the mortgage notes payable as of December 31, 2015: Collateral Property Name Payment Type Maturity Date Interest Rate Principal Balance Richardson Heights Property (1)(2) Principal and interest July 1, 2041 4.61% $ 19,614,118 Cooper Street Property (1)(3) Principal and interest July 1, 2041 4.61% 8,156,367 Bent Tree Green Property (1)(2) Principal and interest July 1, 2041 4.61% 8,156,367 Mitchelldale Property (1)(3) Principal and interest July 1, 2041 4.61% 12,355,924 Energy Plaza I & II Principal and interest June 10, 2021 5.30% 10,188,818 $ 58,471,594 (1) Each promissory note contains a call option wherein the holder of the promissory note may declare the outstanding balance due and payable on either July 1, 2024, July 1, 2029, July 1, 2034, or July 1, 2039. (2) In connection with the loans secured by the Richardson Heights Property and the Bent Tree Green Property, the Company entered into a reserve agreement with the lender which requires that loan proceeds of $5,525,000 and $975,000, respectively, be deposited with the loan servicer. The escrowed loan proceeds will be released to us upon satisfactory showing of increased annualized rental income from new lease agreements as set forth in the reserve agreement. Under the terms of the reserve agreement, the Company may draw upon the escrow reserve funds until December 31, 2016. Thereafter, the lender shall have the right to draw any remaining escrow reserve funds and apply such funds to one or more of the loans as the lender may determine in its sole discretion. (3) In connection with the loans secured by the Cooper Street Property and the Mitchelldale Property, the Company entered into a post-closing agreement with the lender requiring the short term escrow of $600,000 for certain capital repairs to be completed during 2014 together with the delivery of certain other documents as set forth in the post-closing agreement. The Company received $200,000 of the escrow proceeds in 2015 as partial recovery for the work completed at the Mitchelldale property. The lender has extended the time for completing certain capital repairs and matters related to the post-closing agreement until February 29, 2016. Loan proceeds and other reserve funds held pursuant to the reserve agreement and the post-closing agreement are recorded as restricted cash on the accompanying consolidated balance sheets. Collateral Property Name Payment Type Maturity Date Interest Rate Principal Balance Richardson Heights Property (1)(2) Principal and interest July 1, 2041 4.61% $ 19,614,118 Cooper Street Property (1)(3) Principal and interest July 1, 2041 4.61% 8,156,367 Bent Tree Green Property (1)(2) Principal and interest July 1, 2041 4.61% 8,156,367 Mitchelldale Property (1)(3) Principal and interest July 1, 2041 4.61% 12,355,924 Energy Plaza I & II Principal and interest June 10, 2021 5.30% 10,188,818 $ 58,471,594 (1) Each promissory note contains a call option wherein the holder of the promissory note may declare the outstanding balance due and payable on either July 1, 2024, July 1, 2029, July 1, 2034, or July 1, 2039. (2) In connection with the loans secured by the Richardson Heights Property and the Bent Tree Green Property, we entered into a reserve agreement with the lender which requires that loan proceeds of $5,525,000 and $975,000, respectively, be deposited with the loan servicer. The escrowed loan proceeds will be released to us upon satisfactory showing of increased annualized rental income from new lease agreements as set forth in the reserve agreement. Under the terms of the reserve agreement, we may draw upon the escrow reserve funds until December 31, 2016. Thereafter, the lender shall have the right to draw any remaining escrow reserve funds and apply such funds to one or more of the loans as the lender may determine in its sole discretion. (3) In connection with the loans secured by the Cooper Street Property and the Mitchelldale Property, we entered into a post-closing agreement with the lender requiring the short term escrow of $600,000 for certain capital repairs to be completed during 2014 together with the delivery of certain other documents as set forth in the post-closing agreement. The Company received $200,000 of the escrow proceeds in 2015 as partial recovery for the work completed at the Mitchelldale property. The lender has extended the time for completing certain capital repairs and matters related to the post-closing agreement until February 29, 2016. Loan proceeds and other reserve funds held pursuant to the reserve agreement and the post-closing agreement are recorded as restricted cash on the accompanying consolidated balance sheets. Annual maturities of notes payable as of December 31, 2015 are as follows: Year ending December 31, Amount Due 2016 $ 1,200,059 2017 19,205,887 2018 1,320,431 2019 1,384,236 2020 1,449,701 Thereafter 51,857,591 Total $ 76,417,905 Interest expense incurred for the year ending December 31, 2015 and 2014 was $3,393,096 and $1,704,146, respectively. Interest expense of $211,746 and $52,962 was payable as of December 31, 2015 and 2014, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. |
Loss Per Share
Loss Per Share | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Loss Per Share | Note 8 Loss Per Share Basic earnings (loss) per share is computed using net income (loss) attributable to common stockholders and the weighted average number of common shares outstanding. Diluted weighted average shares outstanding reflect common shares issuable from the assumed conversion of convertible preferred stock into common shares. Only those items that have a dilutive impact on basic earnings (loss) per share are included in the diluted earnings (loss) per share. Years ended December 31, 2015 2014 Numerator: Net loss attributable to common stockholders ($8,487,559) ($4,414,865) Denominator: Basic and diluted weighted average shares outstanding 10,733,833 7,035,337 Basic and diluted loss per common share: Net loss attributable to common stockholders ($0.79) ($0.63) |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Income Taxes | Note 9 Income Taxes Federal income taxes are not provided for because we qualify as a REIT under the provisions of the Internal Revenue Code and because we have distributed and intend to continue to distribute all of our taxable income to our stockholders. Our stockholders include their proportionate taxable income in their individual tax returns. As a REIT, we must distribute at least 90% of our real estate investment trust taxable income to our stockholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. 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) on our taxable income at regular corporate tax rates. The Companys federal income tax returns for the years ended December 31, 2012, 2013 and 2014 have not been examined by the Internal Revenue Service. The Companys federal income tax return for the year ended December 31, 2012 may be examined on or before September 15, 2016. Taxable income differs from net income for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and amortization and rental revenue. For Federal income tax purposes, the cash distributed to stockholders was characterized as follows for the years ended December 31: 2015 2014 Ordinary income (unaudited) 40.4% 27.7% Return of capital (unaudited) 59.6% 72.3% Capital gains distribution (unaudited) - - % Total 100.0% 100.0% A provision for Texas Franchise tax under the Texas Margin Tax Bill in the amount of $183,244 and $81,133 was recorded in the consolidated financial statements for the years ended December 31, 2015 and 2014, respectively, with a corresponding charge to real estate taxes and insurance. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Related Party Transactions | Note 10 Related Party Transactions Hartman Advisors LLC, is a Texas limited liability company owned 70% by Allen R. Hartman individually and 30% by the Property Manager. The Property Manager is a wholly owned subsidiary of Hartman Income REIT Management, LLC, which is wholly owned by Hartman Income REIT, Inc. and Subsidiaries of which approximately 20% is owned by Allen R. Hartman who is the Chief Executive Officer and Chairman of the Board of Directors. The Company pays acquisition fees and asset management fees to the Advisor in connection with the acquisition of properties and management of the Company. The Company pays property management and leasing commissions to the Property Manager in connection with the management and leasing of the Companys properties. For the years ended December 31, 2015 and 2014 the Company incurred property management fees and reimbursements of $2,000,393 and $826,789, respectively, and $1,049,311 and $1,048,023, respectively for leasing commissions owed to our Property Manager. We incurred asset management fees of $1,012,256 and $548,902, respectively owed to Advisor. Acquisition fees incurred to the Advisor were $1,751,775 and $1,401,275 for the years ended December 31, 2015 and 2014, respectively. The Company had a balance due from the Property Manager of $728,993 and $888,291 as of December 31, 2015 and December 31, 2014, respectively, The Company had a balance due from the Property Manager of $728,993 and $888,291 as of December 31, 2015 and December 31, 2014, respectively. The Company owed the Advisor $624,971 and $1,427,261 for asset management fees as of December 31, 2015 and December 31, 2014, respectively. These fees are monthly fees equal to one-twelfth of 0.75% of the sum of the higher of the cost or value of each asset. The asset management fee will be based only on the portion of the cost or value attributable to the Companys investment in an asset, if the Company do not own all or a majority of an asset. The Company had a balance due to (from) Hartman Short Term Income Properties XIX, Inc. (Hartman XIX) of $3,621 and ($31,366) as of December 31, 2015 and December 31, 2014, respectively, pursuant to the property and company management agreements amount Hartman Income REIT Management and Hartman XIX and its subsidiaries. The Gulf Plaza Property was acquired from fourteen tenant-in-common investors, including Hartman Gulf Plaza Acquisitions, LP (Acquisitions) which owned 1% of the Gulf Plaza Property. Acquisitions is an affiliate of our Property Manager, which indirectly owned approximately 15% of Acquisitions. |
Stockholders' Equity
Stockholders' Equity | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Stockholders' Equity | Note 11 Stockholders Equity Common Stock Shares of 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 Companys 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. The common stock has no preferences or preemptive, conversion or exchange rights. Under our articles of incorporation, the Company has authority to issue 750,000,000 common shares of beneficial interest, $0.001 par value per share, and 200,000,000 preferred shares of beneficial interest, $0.001 par value per share. As of December 31, 2015, the Company had accepted subscriptions for, and issued 14,038,203 shares of the Companys common stock in the Companys initial public offering and the Companys follow-on offering, including 897,459 shares of the Companys common stock issued pursuant to the Companys distribution reinvestment plan, resulting in aggregate offering proceeds of $136,853,634 Preferred Stock Under the Companys articles of incorporation the Companys board of directors has the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such stock, the board of directors shall have the power to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares. As of December 31, 2015 and 2014 the Company has issued 1,000 shares of convertible preferred shares to Hartman Advisors LLC at a price of $10.00 per share. Common Stock Issuable Upon Conversion of Convertible Preferred Stock The convertible preferred stock will convert to shares of common stock if (1) the Company has made total distributions on then outstanding shares of the Companys common stock equal to the issue price of those shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares, (2) the Company lists its common stock for trading on a national securities exchange if the sum of prior distributions on then outstanding shares of the Companys common stock plus the aggregate market value of the Companys common stock (based on the 30-day average closing price) meets the same 6% performance threshold, or (3) the Companys advisory agreement with Hartman Advisors, LLC expires without renewal or is terminated (other than because of a material breach by the Advisor), and at the time of such expiration or termination the Company is deemed to have met the foregoing 6% performance threshold based on the Companys enterprise value and prior distributions and, at or subsequent to the expiration or termination, the stockholders actually realize such level of performance upon listing or through total distributions. In general, the convertible stock will convert into shares of common stock with a value equal to 15% of the excess of the Companys enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. With respect to conversion in connection with the termination of the advisory agreement, this calculation is made at the time of termination even though the actual conversion may occur later, or not at all. 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 years ended December 31, 2015 and 2014, respectively, the Company granted 6,000 and 6,000 shares of restricted common stock to independent directors as compensation for services. The Company recognized $60,000 and $60,000 as share-based compensation expense for the years ended December 31, 2015 and 2014, respectively, based upon the estimated fair value per share. Share based compensation also includes incentive plan awards discussed at Note 12. These amounts are included in general and administrative expenses for the years ending December 31, 2015 and 2014, respectively in the accompanying consolidated statements of operations. Distributions The following table reflects the total distributions the Company has paid in cash and through the distribution reinvestment plan, including the total amount paid and amount paid per common share, in each indicated quarter: Quarter Paid Distributions per Common Share Total Distributions Paid 2015 4 th $ 0.175 $ 2,150,190 3 rd 0.175 1,946,868 2 nd 0.175 1,679,084 1 st 0.175 1,416,861 Total $ 0.700 $ 7,193,003 2014 4 th $ 0.175 $ 1,306,367 3 rd 0.175 1,237,568 2 nd 0.175 1,191,153 1 st 0.175 1,103,599 Total $ 0.700 $ 4,838,687 |
Incentive Awards Plan
Incentive Awards Plan | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Incentive Awards Plan | Note 12 Incentive Awards Plan The Company has adopted an incentive plan (the Omnibus Stock Incentive Plan or the Incentive Plan) that provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, dividend equivalent rights and other stock-based awards within the meaning of Internal Revenue Code Section 422, or any combination of the foregoing. The Company has initially reserved 5,000,000 shares of the Companys common stock for the issuance of awards under the Companys stock incentive plan, but in no event more than ten (10%) percent of the Companys issued and outstanding shares. The number of shares reserved under the Companys stock incentive plan is also subject to adjustment in the event of a stock split, stock dividend or other change in the Companys capitalization. Generally, shares that are forfeited or canceled from awards under the Companys stock incentive plan also will be available for future awards. The Compensation Committee of the Board of Directors approved awards of 1,000 shares of restricted common stock that were effective January 1, 2015 and 2014 to each of two executives of Hartman Income REIT Management, the Property Manager for the Company. The Company recognized stock-based compensation expense of $20,000 and $20,000 with respect to these awards based on the offering price of $10 per share during the years ended December 31, 2015 and 2014, respectively. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Commitments and Contingencies | Note 13 Commitments and Contingencies Economic Dependency The Company is dependent on the Property Manager 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 Companys 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 |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2015 | |
Notes | |
Subsequent Events | Note 14 Subsequent Events For the period from January 1, 2016 to March 28, 2016, the Company issued 2,780,489 shares of its common stock from its public offering, resulting in gross proceeds of $27,085,236. As of March 28, 2016 there were 16,530,636 shares of common stock issued and outstanding. The Company will terminate its public offering effective March 31, 2016. The Companys board of directors continues to evaluate potential liquidity events to maximize the total potential return to stockholders, including, but not limited to, merging the Company with its affiliates Hartman Income REIT, Inc. and Hartman Short Term Income Properties XIX, Inc., followed by a public listing of the Companys common stock. The Company has not made a decision to pursue any specific liquidity event, and there can be no assurance that the Company will complete a liquidity event on the terms described above or at all. There is no set timetable for completion of the Companys review of strategic alternatives and there can be no assurances that the review process will result in any liquidity event being announced or completed. On February 2, 2016, Company entered into a purchase and sale agreement with EQYInvest Mission Bend, LLC, for the acquisition of Mission Bend Shopping Center, a suburban shopping center comprising approximately 140,576 square feet located in Houston, Texas. The aggregate purchase price for Mission Bend Shopping Center is $15,100,000, exclusive of closing costs. The Company intends to assign the purchase and sale agreement to Hartman Retail II DST, an affiliate of our property manager and sponsor, prior to closing of the acquisition. On March 22, 2016, the Company formed Hartman TRS, Inc. (TRS), a wholly owned Texas corporation. TRS will elect to be treated as a taxable REIT (real estate investment trust) subsidiary with its first taxable year ending December 31, 2016. The Company intends to capitalize TRS with approximately $7,000,000 cash. As a taxable REIT subsidiary, TRS may engage in business activities which may not be undertaken by a real estate investment, including the Company. Effective March 15, 2016, the Company acquired 1,558,014 common shares of Hartman Income REIT, Inc. (HIREIT) for $8,958,579 or $5.75 per common share. The shares were acquired in connection with a tender offer by Hartman Short Term Income Properties XIX, Inc. (Hartman XIX) to acquire up to 347,826 common shares of HI for $2,000,000 or $5.75 per common share. The initial tender offer by Hartman XIX was approximately four times oversubscribed. At a meeting of the Companys board of directors on January 26, 2016, the board approved the purchase by the Company of up to $13.0 million of HIREIT stock from Hartman XIX in connection with the tender offering. |
Summary of Significant Accoun20
Summary of Significant Accounting Policies: Basis of Presentation (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements as of December 31, 2015 and 2014 and for the years then ended have been prepared by the Company in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-K and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. These consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries. All significant intercompany balances and transactions have been eliminated. |
Summary of Significant Accoun21
Summary of Significant Accounting Policies: Use of Estimates (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Summary of Significant Accoun22
Summary of Significant Accounting Policies: Reclassifications (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Reclassifications | Reclassifications The Company has reclassified certain prior fiscal year amounts in the accompanying consolidated financial statements in order to be consistent with the current fiscal year presentation. These reclassifications had no effect on the previously reported working capital or results of operations. |
Summary of Significant Accoun23
Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Cash and Cash Equivalents | Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents as of December 31, 2015 and 2014 consisted of demand deposits at commercial banks. |
Summary of Significant Accoun24
Summary of Significant Accounting Policies: Restricted Cash (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Restricted Cash | Restricted Cash Restricted cash represents cash for which the use of funds is restricted by certain loan documents. As of December 31, 2015 and December 31, 2014, the Company had a restricted cash balance of $6,900,000 and $7,100,000, respectively, which represent amounts set aside as impounds to be disbursed to the Company (i) upon its achieving incremental occupancy and gross income thresholds at the Richardson Heights Property and the Bent Tree Green Property, and (ii) the completion of certain agreed upon capital repairs at the Cooper Street Property and the Mitchelldale Property. Restricted cash includes $6,500,000 of loan proceeds and $400,000 in cash, which have been deposited in escrow accounts with a loan servicer. |
Summary of Significant Accoun25
Summary of Significant Accounting Policies: Financial Instruments (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Financial Instruments | Financial Instruments The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, 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 borrowing rates currently available to the Company for loans with similar terms, the carrying value of its note payable approximates fair value. |
Summary of Significant Accoun26
Summary of Significant Accounting Policies: Revenue Recognition (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Revenue Recognition | Revenue Recognition The Companys 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 reimbursements and other revenue in the period the related costs are incurred. |
Depreciation and Amortization (
Depreciation and Amortization (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Depreciation and Amortization | Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years calculated in terms of all of the leases in-place when acquired. |
Impairment (Policies)
Impairment (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Impairment | Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of the Companys real estate assets as of December 31, 2015 and 2014. 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 propertys future cash flow and fair value and could result in the overstatement of the carrying value of the Companys real estate and related intangible assets and net income. |
Goodwill (Policies)
Goodwill (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Goodwill | Goodwill Generally accepted accounting principles in the United States require the Company to test goodwill for impairment at least annually or more frequently whenever events or circumstances occur indicating goodwill might be impaired. The Company has the option to perform a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value is less than the carrying amount, or if the Company elects to bypass the qualitative assessment, the Company performs a two-step impairment test. In the first step, management compares its net book value of the Company to the carrying amount of goodwill at the balance sheet date. In the event net book value of the Company is less than the carrying amount of goodwill, the Company proceeds to step two and assesses the need to record an impairment charge. For the years ended December 31, 2015 and 2014, no goodwill impairment was recognized in the accompanying consolidated financial statements. |
Organization and Offering Costs
Organization and Offering Costs (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Organization and Offering Costs | Organization and Offering Costs The Company has incurred certain expenses in connection with organizing the company. These costs principally relate to professional and filing fees. For the years ended December 31, 2015 and 2014, such costs totaled $963,331 and $463,655, respectively, which have been expensed as incurred. Pursuant to the Advisory Agreement, the Company is obligated to reimburse Advisor and its affiliates, as applicable, for organization and offering costs (other than selling commissions and the dealer manager fee) incurred on the Companys behalf associated with each of the Companys public offerings, but only to the extent that such reimbursements do not exceed actual expenses incurred by Advisor and would not cause the Companys total organization and offering expenses related to the Companys primary offering (other than selling commissions and the dealer manager fees) to exceed 1.5% of gross offering proceeds from the primary offering. Advisor and its affiliates will be responsible for the payment of organization and offering expenses (other than selling commissions and the dealer manager fee) to the extent they exceed 1.5% of gross offering proceeds from the primary offering. Pursuant to the Companys charter, in no event may organization and offering costs (including selling commissions and the dealer manager fees) incurred by the Company in connection with a completed public offering exceed 15.0% of the gross offering proceeds from the sale of the Companys shares of common stock in the completed public offering. As of December 31, 2015, the organization and offering costs incurred in connection with the Companys follow-on public offering did not exceed 15.0% of the gross offering proceeds from the sale of the Companys shares of common stock in the follow-on offering. As of December 31, 2015 and 2014 the offering and organizational expense incurred in excess of 1.5% of gross offering proceeds is $718,087 and $535,023, respectively. No demand has been made of the Advisor for reimbursement of such amounts as of December 31, 2015 and no receivable has been recorded with respect to the excess costs as of that date. |
Stock-based Compensation (Polic
Stock-based Compensation (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Stock-based Compensation | Stock-Based Compensation The Company follows ASC 718- Compensation- Stock Compensation with regard to issuance of stock in payment of services. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. The compensation cost is measured based on the fair value of the equity or liability instruments issued. |
Advertising (Policies)
Advertising (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Advertising | Advertising The Company expenses advertising costs as incurred and such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Advertising costs totaled $161,538 and $77,954 for the years ended December 31, 2015 and 2014, respectively. |
Income Taxes (Policies)
Income Taxes (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Income Taxes | Income Taxes The Company has elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, beginning with its taxable year ended December 31, 2011. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Companys annual REIT taxable income to stockholders (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). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax 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 which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Companys net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and will operate in such a manner as to qualify for treatment as a REIT. For the years ended December 31, 2015 and 2014, the Company incurred a net loss of $8,487,559 and $4,414,865, respectively. The Company does not currently anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Companys 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. |
Loss Per Share (Policies)
Loss Per Share (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Loss Per Share | Loss Per Share The computations of basic and diluted loss per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Companys potentially dilutive securities include preferred shares that are convertible into the Companys common stock. As of December 31, 2015 and 2014, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net loss per share for the years ended December 31, 2015 and 2014 because no shares are issuable and inclusion of such potentially dilutive securities would have been anti-dilutive. |
Concentration of Risk (Policies
Concentration of Risk (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Policies | |
Concentration of Risk | 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. The geographic concentration of the Companys real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocations of businesses, increased competition or any other changes, could adversely affect the Companys operating results and its ability to make distributions to stockholders The sole tenant of the Gulf Plaza property represents 11.1% and 12.0% of the Companys rental revenues for the year ended December 31, 2015 and 2014, respectively. |
Real Estate_ Real Estate Assets
Real Estate: Real Estate Assets (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Real Estate Assets | Real estate assets consisted of the following: December 31, 2015 2014 Land $ 47,996,750 $ 26,829,000 Buildings and improvements 91,644,630 60,687,858 In-place lease value intangible 50,065,224 28,410,738 189,706,604 115,927,596 Less accumulated depreciation and amortization (27,384,077) (12,904,556) Total real estate assets $ 162,322,527 $ 103,023,040 |
Real Estate_ The Amount of Tota
Real Estate: The Amount of Total In-place Lease Intangible Asset and The Respective Accumulated Amortization (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
The Amount of Total In-place Lease Intangible Asset and The Respective Accumulated Amortization | The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows: December 31, 2015 2014 In-place lease value intangible $ 50,065,224 $ 28,410,738 In-place leases accumulated amortization (18,728,241) (8,595,599) Acquired lease intangible assets, net $ 31,336,983 $ 19,815,139 |
Real Estate_ The Estimated Aggr
Real Estate: The Estimated Aggregate Future Amortization Amounts From Acquired Lease Intangibles (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
The Estimated Aggregate Future Amortization Amounts From Acquired Lease Intangibles | The estimated aggregate future amortization amounts from acquired lease intangibles are as follows: Year ending December 31, In-place lease amortization 2016 $ 15,229,591 2017 11,865,795 2018 3,608,108 2019 388,925 2020 162,156 Thereafter 82,408 Total $ 31,336,983 |
Real Estate_ 2015 property acqu
Real Estate: 2015 property acquisitions (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
2015 property acquisitions | Commerce Plaza Hillcrest Ashford Crossing Corporate Park Place Skymark Tower One Technology Center Total 400 North Belt Assets acquired: Real estate assets $11,400,000 $10,150,000 $10,600,000 $9,500,000 $8,846,000 $19,575,000 $70,071,000 Liabilities assumed: Accounts payable and accrued expenses 74,049 640,057 722,809 137,942 121,657 116,978 1,813,492 Security deposits 129,284 54,808 90,307 70,705 62,850 93,434 501,388 Total liabilities assumed 203,333 694,865 813,116 208,647 184,507 210,412 2,314,880 Fair value of net assets acquired $11,196,667 $9,455,135 $9,786,884 $9,291,353 $8,661,493 $19,364,588 $67,756,120 |
Real Estate_ 2014 property acqu
Real Estate: 2014 property acquisitions (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
2014 property acquisitions | Timbercreek/ Gulf Plaza Mitchelldale Energy Plaza Copperfield Total Assets acquired: Real estate assets $13,950,000 $19,175,000 $17,610,000 $5,316,000 $56,051,000 Other assets 112,316 102,268 681,960 - 896544 Total assets acquired 14,062,316 19,277,268 18,291,960 5,316,000 56,947,544 Liabilities assumed: Accounts payable and accrued expenses 292,347 219,548 443,142 71,613 1,026,650 Security deposits - 196,850 200,638 5,128 402,616 Note payable - - 10,362,573 - 10362573 Total liabilities assumed 292,347 416,398 11,006,353 76,741 11,791,839 Fair value of net assets acquired $13,769,969 $18,860,870 $7,285,607 $5,239,259 $45,155,705 |
Real Estate_ Pro forma consolid
Real Estate: Pro forma consolidated financial information (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Pro forma consolidated financial information | Years ended December 31, 2015 2014 Pro forma Revenue 34,924,583 30,807,539 Pro forma Net loss 8,907,832 12,777,855 |
Accrued Rent and Accounts Rec42
Accrued Rent and Accounts Receivable, Net: Accrued Rent and Accounts Receivable, Net (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Accrued Rent and Accounts Receivable, Net | Accrued rent and accounts receivable, net, consisted of the following: Years ended December 31, 2015 2014 Tenant receivables $ 1,178,121 $ 361,373 Accrued rent 2,065,301 1,243,985 Allowance for doubtful accounts (493,143) (216,938) Accrued Rents and Accounts Receivable, net $ 2,750,279 $ 1,388,420 |
Deferred Loan and Leasing Com43
Deferred Loan and Leasing Commission Costs, Net: Deferred loan costs, net (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Deferred loan costs, net | Costs which have been deferred consist of the following: Years ended December 31, 2015 2014 Deferred loan costs $ 1,726,420 $ 1,172,624 Less: deferred loan cost accumulated amortization (303,708) (106,256) Total cost, net of accumulated amortization $ 1,422,712 $ 1,066,368 |
Deferred Loan and Leasing Com44
Deferred Loan and Leasing Commission Costs, Net: Deferred Leasing Commissions (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Deferred Leasing Commissions | Years ended December 31, 2015 2014 Deferred Leasing Commissions $ 3,006,203 $ 1,956,892 Less: deferred leasing commissions accumulated amortization (603,313) (221,085) Total cost, net of accumulated amortization $ 2,402,890 $ 1,735,807 |
Future Minimum Rents_ Future Mi
Future Minimum Rents: Future Minimum Rents (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Future Minimum Rents | Year ending December 31, Minimum Future Rents 2016 27,718,333 2017 21,897,247 2018 15,051,613 2019 9,334,975 2020 6,222,438 Thereafter 16,710,434 Total $ 96,935,040 |
Notes Payable_ Mortgage notes s
Notes Payable: Mortgage notes summary (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Mortgage notes summary | Collateral Property Name Payment Type Maturity Date Interest Rate Principal Balance Richardson Heights Property (1)(2) Principal and interest July 1, 2041 4.61% $ 19,614,118 Cooper Street Property (1)(3) Principal and interest July 1, 2041 4.61% 8,156,367 Bent Tree Green Property (1)(2) Principal and interest July 1, 2041 4.61% 8,156,367 Mitchelldale Property (1)(3) Principal and interest July 1, 2041 4.61% 12,355,924 Energy Plaza I & II Principal and interest June 10, 2021 5.30% 10,188,818 $ 58,471,594 |
Notes Payable_ Principal and in
Notes Payable: Principal and interest (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Principal and interest | Collateral Property Name Payment Type Maturity Date Interest Rate Principal Balance Richardson Heights Property (1)(2) Principal and interest July 1, 2041 4.61% $ 19,614,118 Cooper Street Property (1)(3) Principal and interest July 1, 2041 4.61% 8,156,367 Bent Tree Green Property (1)(2) Principal and interest July 1, 2041 4.61% 8,156,367 Mitchelldale Property (1)(3) Principal and interest July 1, 2041 4.61% 12,355,924 Energy Plaza I & II Principal and interest June 10, 2021 5.30% 10,188,818 $ 58,471,594 |
Notes Payable_ Annual Maturitie
Notes Payable: Annual Maturities of Notes Payable (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Annual Maturities of Notes Payable | Annual maturities of notes payable as of December 31, 2015 are as follows: Year ending December 31, Amount Due 2016 $ 1,200,059 2017 19,205,887 2018 1,320,431 2019 1,384,236 2020 1,449,701 Thereafter 51,857,591 Total $ 76,417,905 |
Loss Per Share_ Basic earnings
Loss Per Share: Basic earnings (loss) per share (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Basic earnings (loss) per share | Basic earnings (loss) per share is computed using net income (loss) attributable to common stockholders and the weighted average number of common shares outstanding. Diluted weighted average shares outstanding reflect common shares issuable from the assumed conversion of convertible preferred stock into common shares. Only those items that have a dilutive impact on basic earnings (loss) per share are included in the diluted earnings (loss) per share. Years ended December 31, 2015 2014 Numerator: Net loss attributable to common stockholders ($8,487,559) ($4,414,865) Denominator: Basic and diluted weighted average shares outstanding 10,733,833 7,035,337 Basic and diluted loss per common share: Net loss attributable to common stockholders ($0.79) ($0.63) |
Income Taxes_ Income Taxes (Tab
Income Taxes: Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Income Taxes | For Federal income tax purposes, the cash distributed to stockholders was characterized as follows for the years ended December 31: 2015 2014 Ordinary income (unaudited) 40.4% 27.7% Return of capital (unaudited) 59.6% 72.3% Capital gains distribution (unaudited) - - % Total 100.0% 100.0% |
Stockholders' Equity_ Distribut
Stockholders' Equity: Distributions (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Tables/Schedules | |
Distributions | The following table reflects the total distributions the Company has paid in cash and through the distribution reinvestment plan, including the total amount paid and amount paid per common share, in each indicated quarter: Quarter Paid Distributions per Common Share Total Distributions Paid 2015 4 th $ 0.175 $ 2,150,190 3 rd 0.175 1,946,868 2 nd 0.175 1,679,084 1 st 0.175 1,416,861 Total $ 0.700 $ 7,193,003 2014 4 th $ 0.175 $ 1,306,367 3 rd 0.175 1,237,568 2 nd 0.175 1,191,153 1 st 0.175 1,103,599 Total $ 0.700 $ 4,838,687 |
Organization and Business (Deta
Organization and Business (Details) | 12 Months Ended |
Dec. 31, 2015USD ($)$ / sharesshares | |
Details | |
Entity Incorporation, Date of Incorporation | Feb. 5, 2009 |
IPO Maximum shares amount | $ | $ 250,000,000 |
Shares Issued, Price Per Share | $ / shares | $ 10 |
Distribution reinvestment plan Limit | $ | $ 23,750,000 |
Distribution reinvestment plan at a price | $ / shares | $ 9.50 |
Distribution reinvestment plan share price | $ / shares | $ 9.50 |
Common Stock, Shares, Issued | shares | 14,038,203 |
Distribution reinvestment plan shares issued | shares | 897,459 |
Gross offering proceeds | $ | $ 136,853,634 |
Non-employee compensation | shares | 44,875 |
Price of preferred share | $ / shares | $ 10 |
Convertible Preferred Stock, Shares Issued upon Conversion | shares | 1,000 |
Number of Units in Real Estate Property | 15 |
Summary of Significant Accoun53
Summary of Significant Accounting Policies: Restricted Cash (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Restricted cash | $ 6,900,000 | $ 7,100,000 |
Organization and Offering Cos54
Organization and Offering Costs (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Organization and Offering Costs compare | $ 963,331 | $ 463,655 |
1.5% of gross offering proceeds | $ 718,087 | $ 535,023 |
Real Estate_ Real Estate Asse55
Real Estate: Real Estate Assets (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Land | $ 47,996,750 | $ 26,829,000 |
Buildings and Improvements, Gross | 91,644,630 | 60,687,858 |
Intangible Assets, Current | $ 50,065,224 | $ 28,410,738 |
Real Estate (Details)
Real Estate (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Details | ||
Depreciation | $ 4,346,879 | $ 2,283,389 |
Amortization expense | $ 10,132,641 | $ 4,342,366 |
Real Estate_ The Amount of To57
Real Estate: The Amount of Total In-place Lease Intangible Asset and The Respective Accumulated Amortization (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Intangible Assets, Current | $ 50,065,224 | $ 28,410,738 |
Ground Leases, Accumulated Amortization | (18,728,241) | (8,595,599) |
Acquired lease intangible assets, net | $ 31,336,983 | $ 19,815,139 |
Real Estate_ Pro forma consol58
Real Estate: Pro forma consolidated financial information (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Details | ||
Business Acquisition, Pro Forma Revenue | $ 34,924,583 | $ 30,807,539 |
Business Acquisition, Pro Forma Net Income (Loss) | $ 8,907,832 | $ 12,777,855 |
Accrued Rent and Accounts Rec59
Accrued Rent and Accounts Receivable, Net: Accrued Rent and Accounts Receivable, Net (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Tenant receivables | $ 1,178,121 | $ 361,373 |
Accrued Rent, Current | 2,065,301 | 1,243,985 |
Allowance for doubtful accounts | (493,143) | (216,938) |
Accrued Rents and Accounts Receivable, net balance | $ 2,750,279 | $ 1,388,420 |
Deferred Loan and Leasing Com60
Deferred Loan and Leasing Commission Costs, Net: Deferred Leasing Commissions (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Deferred Leasing Commissions | $ 3,006,203 | $ 1,956,892 |
Deferred Costs, Leasing, Accumulated Amortization | (603,313) | (221,085) |
Total cost, net of accumulated amortization | $ 2,402,890 | $ 1,735,807 |
Future Minimum Rents_ Future 61
Future Minimum Rents: Future Minimum Rents (Details) - USD ($) | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Details | ||||
Minimum Future Rents | $ 9,334,975 | $ 15,051,613 | $ 21,897,247 | $ 27,718,333 |
Notes Payable_ Annual Maturit62
Notes Payable: Annual Maturities of Notes Payable (Details) - USD ($) | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Details | ||||
Annual maturities | $ 1,384,236 | $ 1,320,431 | $ 19,205,887 | $ 1,200,059 |
Notes Payable (Details)
Notes Payable (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Details | ||
Interest expense payable | $ 211,746 | $ 52,962 |
Stockholders' Equity_ Distrib64
Stockholders' Equity: Distributions (Details) | 12 Months Ended |
Dec. 31, 2015USD ($) | |
Details | |
Total Distributions Paid | $ 7,193,003 |