Cover Page
Cover Page - shares | 9 Months Ended | |
Sep. 30, 2019 | Nov. 01, 2019 | |
Cover page. | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2019 | |
Document Transition Report | false | |
Entity File Number | 000-53912 | |
Entity Registrant Name | HARTMAN SHORT TERM INCOME PROPERTIES XX, INC. | |
Entity Incorporation, State or Country Code | MD | |
Entity Tax Identification Number | 26-3455189 | |
Entity Address, Address Line One | 2909 Hillcroft | |
Entity Address, Address Line Two | Suite 420 | |
Entity Address, City or Town | Houston | |
Entity Address, State or Province | TX | |
Entity Address, Postal Zip Code | 77057 | |
City Area Code | 713 | |
Local Phone Number | 467-2222 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Smaller Reporting Company | true | |
Emerging Growth Company | true | |
Entity Shell Company | false | |
Extended Transition Period | true | |
Entity Common Stock, Shares Outstanding | 18,417,687 | |
Amendment Flag | false | |
Entity Central Index Key | 0001446687 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
ASSETS | ||
Real estate assets, at cost | $ 591,524 | $ 583,112 |
Accumulated depreciation and amortization | (110,493) | (89,840) |
Real estate assets, net | 481,031 | 493,272 |
Cash and cash equivalents | 990 | 17,780 |
Restricted cash | 22,197 | 33,696 |
Accrued rent and accounts receivable, net | 14,468 | 11,881 |
Notes receivable - related party | 16,272 | 6,676 |
Deferred leasing commission costs, net | 10,423 | 8,301 |
Goodwill | 250 | 250 |
Prepaid expenses and other assets | 966 | 1,249 |
Investment in affiliate | 8,978 | 8,978 |
Total assets | 555,575 | 582,083 |
Liabilities: | ||
Notes payable, net | 298,588 | 305,907 |
Due to related parties | 2,772 | 1,496 |
Accounts payable and accrued expenses | 15,557 | 21,335 |
Tenants' security deposits | 5,178 | 4,864 |
Total liabilities | 322,095 | 333,602 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, $0.001 par value, 200,000,000 convertible, non-voting shares authorized, 1,000 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 0 | 0 |
Common stock, $0.001 par value, 750,000,000 authorized, 18,417,687 shares and 17,711,384 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 18 | 18 |
Additional paid-in capital | 173,950 | 165,084 |
Accumulated distributions and net loss | (104,371) | (95,162) |
Total stockholders' equity | 69,597 | 69,940 |
Noncontrolling interests in subsidiary | 163,883 | 178,541 |
Total equity | 233,480 | 248,481 |
Total liabilities and equity | $ 555,575 | $ 582,083 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Convertible, non-voting shares authorized (in shares) | 200,000,000 | 200,000,000 |
Preferred stock, shares issued (in shares) | 1,000 | 1,000 |
Preferred stock, shares outstanding (in shares) | 1,000 | 1,000 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized (in shares) | 750,000,000 | 750,000,000 |
Common stock, shares issued (in shares) | 18,417,687 | 17,711,384 |
Common stock, shares outstanding (in shares) | 18,417,687 | 17,711,384 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Revenues | ||||
Rental revenues | $ 18,444 | $ 9,850 | $ 53,787 | $ 29,386 |
Tenant reimbursements and other revenues | 3,497 | 1,214 | 10,713 | 4,820 |
Total revenues | 21,941 | 11,064 | 64,500 | 34,206 |
Expenses (income) | ||||
Property operating expenses | 7,770 | 4,381 | 20,780 | 11,905 |
Asset management fees | 440 | 440 | 1,320 | 1,320 |
Real estate taxes and insurance | 3,087 | 1,596 | 9,321 | 4,686 |
Depreciation and amortization | 6,989 | 2,821 | 20,653 | 10,279 |
General and administrative | 1,388 | 972 | 4,051 | 2,436 |
Interest expense | 3,433 | 1,530 | 10,625 | 4,824 |
Interest and dividend income | (833) | (294) | (1,346) | (891) |
Total expenses, net | 22,274 | 11,446 | 65,404 | 34,559 |
Net loss | (333) | (382) | (904) | (353) |
Net loss attributable to noncontrolling interests | (622) | (340) | (1,285) | (328) |
Net income (loss) attributable to common stockholders | $ 289 | $ (42) | $ 381 | $ (25) |
Net income (loss) attributable to common stockholders per share (in dollars per share) | $ 0.02 | $ 0 | $ 0.02 | $ 0 |
Weighted average number of common shares outstanding, basic and diluted (in shares) | 18,418 | 18,010 | 18,265 | 18,009 |
CONSOLIDATED STATEMENTS OF EQUI
CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands | Total | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Distributions and Net Loss | Total Stockholders' Equity | Noncontrolling Interests |
Beginning balance (in shares) at Dec. 31, 2017 | 1,000 | 18,004,000 | |||||
Beginning balance at Dec. 31, 2017 | $ 100,039 | $ 0 | $ 18 | $ 167,871 | $ (81,188) | $ 86,701 | $ 13,338 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Issuance of common shares (in shares) | 6,000 | ||||||
Issuance of common shares | 76 | 76 | 76 | ||||
Dividends and distributions (cash) | (9,865) | (9,455) | (9,455) | (410) | |||
Net income (loss) | (353) | (25) | (25) | (328) | |||
Ending balance (in shares) at Sep. 30, 2018 | 1,000 | 18,010,000 | |||||
Ending balance at Sep. 30, 2018 | 89,897 | $ 0 | $ 18 | 167,947 | (90,668) | 77,297 | 12,600 |
Beginning balance (in shares) at Jun. 30, 2018 | 1,000 | 18,010,000 | |||||
Beginning balance at Jun. 30, 2018 | 93,570 | $ 0 | $ 18 | 167,947 | (87,473) | 80,492 | 13,078 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Dividends and distributions (cash) | (3,291) | (3,153) | (3,153) | (138) | |||
Net income (loss) | (382) | (42) | (42) | (340) | |||
Ending balance (in shares) at Sep. 30, 2018 | 1,000 | 18,010,000 | |||||
Ending balance at Sep. 30, 2018 | 89,897 | $ 0 | $ 18 | 167,947 | (90,668) | 77,297 | 12,600 |
Beginning balance (in shares) at Dec. 31, 2018 | 1,000 | 17,712,000 | |||||
Beginning balance at Dec. 31, 2018 | 248,481 | $ 0 | $ 18 | 165,084 | (95,162) | 69,940 | 178,541 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Issuance of common shares (in shares) | 6,000 | ||||||
Issuance of common shares | 76 | 76 | 76 | ||||
Purchase of non-controlling interest (in shares) | 700,000 | ||||||
Purchase of non-controlling interest | (68) | 8,790 | 8,790 | (8,858) | |||
Dividends and distributions (cash) | (14,105) | (9,590) | (9,590) | (4,515) | |||
Net income (loss) | (904) | 381 | 381 | (1,285) | |||
Ending balance (in shares) at Sep. 30, 2019 | 1,000 | 18,418,000 | |||||
Ending balance at Sep. 30, 2019 | 233,480 | $ 0 | $ 18 | 173,950 | (104,371) | 69,597 | 163,883 |
Beginning balance (in shares) at Jun. 30, 2019 | 1,000 | 18,418,000 | |||||
Beginning balance at Jun. 30, 2019 | 237,270 | $ 0 | $ 18 | 173,950 | (101,436) | 72,532 | 164,738 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Dividends and distributions (cash) | (3,457) | (3,224) | (3,224) | (233) | |||
Net income (loss) | (333) | 289 | 289 | (622) | |||
Ending balance (in shares) at Sep. 30, 2019 | 1,000 | 18,418,000 | |||||
Ending balance at Sep. 30, 2019 | $ 233,480 | $ 0 | $ 18 | $ 173,950 | $ (104,371) | $ 69,597 | $ 163,883 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Cash flows from operating activities: | ||
Net income (loss) | $ (904) | $ (353) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
Stock based compensation | 58 | 57 |
Depreciation and amortization | 20,653 | 10,279 |
Deferred loan and lease commission costs amortization | 2,572 | 1,523 |
Bad debt provision | 39 | 1,058 |
Changes in operating assets and liabilities: | ||
Accrued rent and accounts receivable | (2,626) | (2,858) |
Deferred leasing commissions | (3,849) | (2,663) |
Prepaid expenses and other assets | (246) | (100) |
Accounts payable and accrued expenses | (6,144) | (1,143) |
Due to/from related parties | 1,276 | 785 |
Tenants' security deposits | 314 | 167 |
Net cash provided by operating activities | 11,143 | 6,752 |
Cash flows from investing activities: | ||
Acquisition deposits | 529 | 0 |
Advance to affiliate - related party | 0 | (6,608) |
Investment in affiliate - related party | (10,546) | 0 |
Repayment of note receivable - related party | 950 | 2,043 |
Additions to real estate | (8,412) | (5,312) |
Net cash used in investing activities | (17,479) | (9,877) |
Cash flows from financing activities: | ||
Distributions to common stockholders | (9,590) | (9,454) |
Distributions to non-controlling interest | (4,515) | (411) |
Borrowings under insurance premium finance note | 1,577 | 603 |
Refund of stock selling commissions | 0 | 2 |
Repayment under insurance premium finance note | (1,261) | (483) |
Payments of deferred loan costs | (72) | (283) |
Repayments under term loan notes | (8,092) | (1,663) |
Borrowings under revolving credit facility | 0 | 11,528 |
Net cash used in financing activities | (21,953) | (161) |
Net change in cash and cash equivalents and restricted cash | (28,289) | (3,286) |
Cash and cash equivalents and restricted cash, beginning of period | 51,476 | 5,563 |
Cash and cash equivalents and restricted cash, end of period | 23,187 | 2,277 |
Supplemental cash flow information: | ||
Cash paid for interest | 9,879 | 4,523 |
Supplemental disclosure of non-cash activities: | ||
Value of Director's stock compensation shares issued | 76 | 76 |
Value of Common shares issued to acquire non-controlling interest | 8,790 | 0 |
Acquisition of non-controlling interest | $ (8,858) | $ 0 |
Organization and Business
Organization and Business | 9 Months Ended |
Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
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. As used herein, the “Company,” “we,” “us,” or “our”refer to Hartman Short Term Income Properties XX, Inc. and its consolidated subsidiaries, including the Operating Partnership, except where context otherwise requires. On July 19, 2018, we entered into a limited liability company agreement with our affiliates Hartman Income REIT, Inc. (“HIREIT”), Hartman Short Term Income Properties XIX, Inc. (“Hartman XIX”) and Hartman vREIT XXI, Inc. (“vREIT XXI”) to form Hartman SPE, LLC ("SPE LLC"), a special purpose entity. On October 1, 2018, SPE LLC, as borrower, and Goldman Sachs Mortgage Company entered into a term loan agreement pursuant to which the lender made a term loan to SPE LLC in the principal amount of $259,000,000. Contemporaneously therewith and together with our affiliates HIREIT, Hartman XIX and vREIT XXI, we contributed a total of 39 commercial real estate properties ("Properties") to SPE, LLC, subject to the then existing mortgage indebtedness encumbering the Properties, in exchange for membership interests in SPE LLC. Proceeds of the Loan were immediately used to extinguish the existing mortgage indebtedness encumbering the Properties. Substantially all of our business is conducted through our wholly owned subsidiary, Hartman XX Limited Partnership, a Texas limited partnership (the “Operating Partnership”) and SPE LLC. Our wholly-owned subsidiary, Hartman XX REIT GP LLC, a Texas limited liability company, is the sole general partner of the Operating Partnership. We are the sole limited partner of the Operating Partnership. Our wholly-owned subsidiary, Hartman SPE Management, LLC ("SPE Management") is the manager of SPE LLC. Our single member interests in our limited liability company subsidiaries are owned by the Operating Partnership or its wholly owned subsidiaries. Subject to certain restrictions and limitations, Hartman Advisors LLC ("Advisor") is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf pursuant to an advisory agreement (the “Advisory Agreement”) by and among the Company and Advisor. Management of the Company’s properties and the Properties, is provided pursuant to property management agreements with Hartman Income REIT Management, Inc. (the "Property Manager"), a wholly-owned subsidiary of HIREIT. As of September 30, 2019, the Company owned 43 commercial properties comprising approximately 6.7 million square feet plus three pad sites, all located in Texas. As of September 30, 2019, the Company owned 15 properties located in Richardson, Arlington and Dallas, Texas, 25 properties located in Houston, Texas and three properties located in San Antonio, Texas. As of September 30, 2018, the Company owned 17 commercial properties comprising approximately 2.9 million square feet plus three pad sites, all located in Texas. As of September 30, 2018, the Company owned nine properties located in Richardson, Arlington and Dallas, Texas, six properties located in Houston, Texas and two properties located in San Antonio, Texas. On July 21, 2017, the Company and Hartman Short Term Income Properties XIX, Inc. (“Hartman XIX”), entered into an agreement and plan of merger (the “XIX Merger Agreement”). On July 21, 2017, as subsequently modified on May 8 2018, the Company, the Operating Partnership, Hartman Income REIT, Inc. (“HIREIT”) and Hartman Income REIT Operating Partnership LP, the operating partnership of HIREIT, (“HIROP”), entered into an agreement and plan of merger (the “HIREIT Merger Agreement,” and together with the XIX Merger Agreement, the “Merger Agreements”). Subject to the terms and conditions of the XIX Merger Agreement, including the satisfaction of all closing conditions set forth in the Merger Agreements, Hartman XIX will merge with and into the Company, with the Company surviving the merger (the “Hartman XIX Merger”). Subject to the terms and conditions of the HIREIT Merger Agreement, (i) HIREIT will merge with and into the Company, with HIREIT surviving the merger (the “HIREIT Merger,” and together with the Hartman XIX Merger, the “REIT Mergers”), and (ii) HIROP will merge and with and into the Operating Partnership, with the Operating Partnership surviving the merger (the “Partnership Merger,” and together with the REIT Mergers, the “Mergers”). The REIT Mergers are intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Partnership Merger is intended to be treated as a tax-deferred exchange under Section 721 of the Code. Subject to the terms and conditions of the XIX Merger Agreement, (i) each share of common stock of Hartman XIX (the “XIX Common Stock”) issued and outstanding immediately prior to the Effective Time (as defined in the XIX Merger Agreement) will be automatically cancelled and retired and converted into the right to receive 9,171.98 shares of common stock, $0.01 par value per share, of the Company (“Company Common Stock”), (ii) each share of 8% cumulative preferred stock of Hartman XIX issued and outstanding immediately prior to the Effective Time will be automatically cancelled and retired and converted into the right to receive 1.238477 shares of Company Common Stock, and (iii) each share of 9% cumulative preferred stock of Hartman XIX issued and outstanding immediately prior to the Effective Time will be automatically cancelled and retired and converted into the right to receive 1.238477 shares of Company Common Stock. Subject to the terms and conditions of the HIREIT Merger Agreement, (a) in connection with the HIREIT Merger, (i) each share of common stock of HIREIT (the “HIREIT Common Stock”) issued and outstanding immediately prior to the REIT Merger Effective Time (as defined in the HIREIT Merger Agreement) will be automatically cancelled and retired and converted into the right to receive 0.752222 shares of Company Common Stock, and (ii) each share of subordinate common stock of HIREIT will be automatically cancelled and retired and converted into the right to receive 0.863235 shares of Company Common Stock, and (b) in connection with the Partnership Merger, each unit of limited partnership interest in HIREIT Operating Partnership (“HIREIT OP Units”) issued and outstanding immediately prior to the Partnership Merger Effective Time (as defined in the HIREIT Merger Agreement) (other than any HIREIT OP Units held by HIREIT) will be automatically cancelled and retired and converted into the right to receive 0.752222 validly issued, fully paid and non-assessable units of limited partnership interests in XX Operating Partnership. Each Merger Agreement contains customary covenants, including covenants prohibiting HIREIT and Hartman XIX and their respective subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. The Merger Agreements may be terminated under certain circumstances, including but not limited to (i) by the mutual written consent of all the parties to a Merger Agreement, (ii) by either the Company or HIREIT or Hartman XIX, as applicable, if a final and non-appealable order is entered prohibiting or disapproving the applicable Mergers, (iii) by either the Company or HIREIT or Hartman XIX, as applicable, if the required approval of the applicable Mergers by the stockholders of the Company or HIREIT or Hartman XIX, as applicable (the “Stockholder Approvals”), have not been obtained, (iv) by either the Company or HIREIT or Hartman XIX, as applicable, upon a material uncured breach by the other party that would cause the closing conditions in the applicable Merger Agreement not to be satisfied, or (v) by either the Company or HIREIT or Hartman XIX, as applicable, if the applicable Mergers have not been completed on or before December 31, 2019. No termination fees or penalties are payable by any party to any Merger Agreement in the event of the termination of any Merger Agreement. The Merger Agreements contain certain representations and warranties made by the parties thereto. The representations and warranties of the parties were made solely for purposes of the contract among the parties, and are subject to certain important qualifications and limitations set forth in confidential disclosure letters delivered by the parties to the Mergers to the other parties to the Mergers. Moreover, certain of the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, and the representations and warranties are primarily intended to establish circumstances in which either of the parties may not be obligated to consummate the Mergers, rather than establishing matters as facts. Each Merger Agreement sets forth certain conditions of the parties thereto to consummate the Mergers contemplated by such Merger Agreement, including (i) receipt of the applicable stockholder approvals, (ii) receipt of all regulatory approvals, (iii) the absence of any judgments, orders or laws prohibiting or restraining the consummation of the applicable Mergers, (iv) the effectiveness with the Securities and Exchange Commission (the “SEC”) of the registration statement on Form S-4 to be filed by the Company to register the shares of Company Common Stock to be issued as consideration in the REIT Mergers, (v) the delivery of certain documents, consents and legal opinions, and (vi) the truth and correctness of the representations and warranties of the respective parties, subject to the materiality standards contained in the Merger Agreements. In addition, the consummation of the HIREIT Merger and the Partnership Merger is a condition to the consummation of the Hartman XIX Merger, and vice versa. There can be no guarantee that the conditions to the closing of the Mergers set forth in the Merger Agreements will be satisfied. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2018 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of September 30, 2019 have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X, on a basis consistent with the annual audited consolidated financial statements. The consolidated financial statements presented herein reflect all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the financial position of the Company as of September 30, 2019, and the results of consolidated operations for the three and nine months ended September 30, 2019 and 2018, the consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and the consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018. The results of the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019. The consolidated financial statements herein are condensed and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These unaudited consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries, and Hartman SPE, LLC. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents on the accompanying consolidated balance sheets include all cash and liquid investments with maturities of three months or less. Cash and cash equivalents as of September 30, 2019 and December 31, 2018 consisted of demand deposits at commercial banks. We maintain accounts which may from time to time exceed federally insured limits. We have not experienced any losses in these accounts and believe that the Company is not exposed to any significant credit risk and regularly monitors the financial stability of these financial institutions. Restricted Cash Restricted cash on the accompanying consolidated balance sheets consists of amounts escrowed for future real estate taxes, insurance, capital expenditures and debt service, as required by certain of our mortgage debt agreements. Financial Instruments The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, accrued rent and accounts receivable, accounts payable and accrued expenses and balances due to/due from related parties, as well as related party notes receivable. The Company considers the carrying value of these financial instruments to approximate their respective fair values due to their short-term nature. Disclosure about the fair value of financial instruments is based on relevant information available as of September 30, 2019 and December 31, 2018. Revenue Recognition The Company’s leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation. The Company’s accrued rents are included in accrued rent and accounts receivable, net. The Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Additionally, cost recoveries from tenants are included in the Tenant Reimbursement and Other Revenues line item in the consolidated statement of operations in the period the related costs are incurred. As of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, " Revenue from Contracts with Customers ," which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach and the adoption of this guidance did not have a material impact on the consolidated financial statements. The Company’s revenue is primarily derived from leasing activities, which is specifically excluded from ASU 2014-09. The Company’s other revenue is comprised of tenant reimbursements for real estate taxes, insurance, common area maintenance, and operating expenses. Reimbursements from real estate taxes and certain other expenses are also excluded from of ASU 2014-09. Additionally, the Company’s property dispositions have historically been cash sales with no contingencies and no future involvement in the property, as a result, the new guidance did not have an effect on the Company’s real estate transactions, however, the Company will account for future sales of real estate properties in accordance with the requirements of ASU 2014-09. Real Estate Allocation of Purchase Price of Acquired Assets Upon the acquisition of real properties, it is the Company’s 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 income over the remaining expected terms of the respective leases. The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases. The 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 Company’s reported net loss. Real Estate Joint Ventures and Partnerships To determine the method of accounting for partially owned real estate joint ventures and partnerships, management determines whether an entity is a VIE and, if so, determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity’s significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the design of the entity structure, the nature of the entity’s operations, future cash flow projections, the entity’s financing and capital structure, and contractual relationships and terms. We consolidate a VIE when we have determined that we are the primary beneficiary. Primary risks associated with our involvement with our VIEs include the potential funding of the entities’ debt obligations or making additional contributions to fund the entities’ operations or capital activities. Partially owned, non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements. In determining if we have a controlling financial interest, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. Partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest, but have the ability to exercise significant influence, are accounted for using the equity method. Management continually analyzes and assesses reconsideration events, including changes in the factors mentioned above, to determine if the consolidation or equity method treatment remains appropriate. Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years’ remaining calculated on terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there is no impairment indicated in the carrying value of our real estate assets as of September 30, 2019 and December 31, 2018. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. Fair Value Measurement Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: 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 Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. Deferred Leasing Commission Costs Leasing commissions are amortized using the straight-line method over the term of the related lease agreements. Goodwill GAAP requires 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 applies a one-step quantitative test to determine if the estimated fair value is less than the carrying amount. If the carrying amount exceeds the estimated fair value, the Company will record a goodwill impairment equal to such excess, not to exceed the total amount of goodwill. No goodwill impairment has been recognized in the accompanying consolidated financial statements. Noncontrolling Interests Noncontrolling interests is the portion of equity in a subsidiary not attributable to a parent. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, the Company has reported noncontrolling interests in equity on the consolidated balance sheets but separate from the Company's equity. On the consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Stock-Based Compensation The Company follows Accounting Standards Codification ("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 estimated grant date fair value, as of the grant date of the Company’s common stock, of the equity or liability instruments issued. Stock-based compensation expense are recorded over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. 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 Company’s 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 Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and will continue to operate in such a manner as to qualify for treatment as a REIT. The Company has formed a taxable REIT subsidiary which may generate 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. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the accompanying consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions. Income Per Share The computations of basic and diluted income per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Company’s potentially dilutive securities include preferred shares that are convertible into the Company’s common stock. As of September 30, 2019 and 2018, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net income per share for the nine months ended September 30, 2019 and 2018 because no shares are issuable and inclusion of such potentially dilutive securities would have been anti-dilutive. Concentration of Risk The geographic concentration of the Company’s real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocation of businesses, increased competition or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders. Reclassification Certain items in the comparative consolidated financial statements have been reclassified to conform to the presentation adopted in the current period. Restricted cash reporting line was added on the face of the consolidated balance sheets. The balance currently reported as restricted cash was reported previously in the prepaid expenses and other assets. Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases, along with various subsequent ASUs, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in the same manner as the previous guidance for operating leases. The Company adopted ASU 2016-02 on January 1, 2019, using the modified retrospective transition method such that we applied the standard as of the adoption date. The Company adopted the new standard using the practical expedient package which allowed the Company, as both the lessor and lessee to 1) not reassess whether any expired or existing contracts are or contain leases; 2) not reassess the lease classification for any expired or existing leases; and 3) not reassess initial direct costs for any existing leases. As of September 30, 2019, the Company, through SPE LLC has a ground lease for a parking lot located adjacent to the property at 601 Sawyer, Houston, Texas. The parking lot lease agreement expires at the end of September 2020. The Sawyer property is included in the Company’s consolidated financial statements as of September 30, 2019 and for the nine months ended September 30, 2019 because of the consolidation of SPE with the Company. SPE commenced operations and is consolidated with the Company for periods beginning after September 30, 2018. Lease payments under the parking lot lease agreement are $3,500 per month. As of September 30, 2019, 12 monthly payments remain under the lease agreement for a total of $42,000. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In connection with the new revenue guidance (ASC 606), the new revenue standard will apply to other components of revenue deemed to be non-lease components, such as reimbursement for certain expenses which are based on usage. Under the new guidance, we will continue to recognize the lease components of lease revenue on a straight-line basis over our respective lease terms as we do under prior guidance. However, we would recognize these non-lease components under the new revenue guidance as the related services are delivered. As a result, the total revenue recognized over time would not differ under the new guidance. This does not result in a difference from how the Company has historically recognized revenue for these lease and non-lease components. Additionally, ASU 2016-02 requires that lessees and lessors capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Under ASU 2016-02, allocated payroll costs and other costs that are incurred regardless of whether the lease is obtained will no longer be capitalized as initial direct costs and instead will be expensed as incurred. This does not result in a difference from how the Company has historically recognized lease acquisition costs. On January 1, 2019, the Company adopted ASU 2018-07, "Improvements to Non-employee Stock-Based Payment Accounting." The updated guidance simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. The adoption of this guidance had no impact on our consolidated financial statements. On January 1, 2019, the Company adopted ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities". The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of either adopting the new standard early using a modified retrospective transition method in any interim period after issuance of the update, or alternatively adopting the new standard for fiscal years beginning after December 15, 2018. The adoption of this guidance had no impact on our consolidated financial statements. On January 1, 2018, the Company adopted ASU 2016-17, “Interest Held Through Related Parties That Are Under Common Control,” issued by the FASB, which amends the accounting guidance when determining the treatment of certain VIE’s to include the interest of related parties under common control in a VIE when considering whether or not the reporting entity is the primary beneficiary of the VIE when considering consolidation. In connection with our adoption of ASU 2016-17, we have determined that SPE LLC is a VIE and that the Company is the primary beneficiary. Accordingly, the accounts of SPE LLC are included in our consolidated financial position as of December 31, 2018 and beginning October 1, 2018, in our consolidated results of operations. The Company and its affiliates, Hartman XIX and HIREIT, are guarantors of the SPE LLC note payable. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The updated guidance requires measurement and recognition of expected credit losses for financial assets, including trade and other receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the current guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Generally, the pronouncement requires a modified retrospective method of adoption. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures when adopted. In identifying all of our financial instruments covered under this guidance, the majority of our instruments result from operating leasing transactions, which are not within the scope of the new standard and are to remain governed by the recently issued leasing guidance and other previously issued guidance. We do not believe the adoption of this standard will have a material impact to our consolidated financial statements. |
Real Estate
Real Estate | 9 Months Ended |
Sep. 30, 2019 | |
Real Estate [Abstract] | |
Real Estate | Real Estate The Company’s real estate assets consisted of the following, in thousands: September 30, 2019 December 31, 2018 Land $ 145,050 $ 145,050 Buildings and improvements 345,684 337,272 In-place lease value intangible 100,790 100,790 591,524 583,112 Less: accumulated depreciation and amortization (110,493) (89,840) Total real estate assets $ 481,031 $ 493,272 Depreciation expense for the three months ended September 30, 2019 and 2018 was $4,116,000 and $1,835,170, respectively. Depreciation expense for the nine months ended September 30, 2019 and 2018 was $12,337,000 and $5,215,176, respectively. Amortization expense of in-place lease value intangible was $2,873,000 and $986,273 for the three months ended September 30, 2019 and 2018, respectively. Amortization expense of in-place lease value intangible was $8,315,000 and $5,064,000 for the nine months ended September 30, 2019 and 2018, 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, we consider 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, in thousands: September 30, 2019 December 31, 2018 In-place lease value intangible $ 100,790 $ 100,790 In-place leases – accumulated amortization (66,167) (57,989) Acquired lease intangible assets, net $ 34,623 $ 42,801 As of September 30, 2019, the Company owned 43 commercial properties comprising approximately 6.7 million square feet plus three pad sites, all located in Texas. As of September 30, 2019, the Company owned 15 properties located in Richardson, Arlington and Dallas, Texas, 25 properties located in Houston, Texas and three properties located in San Antonio, Texas. As of September 30, 2018, the Company owned 17 commercial properties comprising approximately 2.9 million square feet plus three pad sites, all located in Texas. As of September 30, 2018, the Company owned nine properties located in Richardson, Arlington and Dallas, Texas, six properties located in Houston, Texas and two properties located in San Antonio, Texas. |
Accrued Rent and Accounts Recei
Accrued Rent and Accounts Receivable, net | 9 Months Ended |
Sep. 30, 2019 | |
Receivables [Abstract] | |
Accrued Rent and Accounts Receivable, net | Accrued Rent and Accounts Receivable, net Accrued rent and accounts receivable, net, consisted of the following, in thousands: September 30, 2019 December 31, 2018 Tenant receivables $ 3,974 $ 2,931 Accrued rent 9,359 8,386 Allowance for uncollectible accounts (1,748) (1,710) Affiliate interest receivable 2,883 2,274 Accrued rents and accounts receivable, net $ 14,468 $ 11,881 As of September 30, 2019 and December 31, 2018, the Company had an allowance for uncollectible accounts of $1,748,000 and $1,710,000, respectively. For the three months ended September 30, 2019 and 2018, the Company recorded bad debt expense in the amount of $140,000 and $481,000, respectively, related to tenant receivables that we have specifically identified as potentially uncollectible based on our assessment of each tenant’s credit-worthiness. For the nine months ended September 30, 2019 and 2018, the Company recorded bad debt expense in the amount of $39,000 and $477,000, respectively. For the three and nine months ended September 30, 2019 and 2018, the Company did not record any write-offs. Bad debt expense and any related recoveries are included in property operating expenses in the accompanying consolidated statements of operations. |
Deferred Leasing Commission Cos
Deferred Leasing Commission Costs, net | 9 Months Ended |
Sep. 30, 2019 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Deferred Leasing Commission Costs, net | Deferred Leasing Commission Costs, net Costs which have been deferred consist of the following, in thousands: September 30, 2019 December 31, 2018 Deferred leasing commissions costs $ 16,521 $ 12,671 Less: accumulated amortization (6,098) (4,370) Deferred leasing commission costs, net $ 10,423 $ 8,301 |
Notes Payable
Notes Payable | 9 Months Ended |
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
Notes Payable | Notes Payable The Operating Partnership is a party to four, cross-collateralized, term loan agreements with an insurance company. The term loans are secured by the Richardson Heights Property, the Cooper Street Property, the Bent Tree Green Property and the Mitchelldale Property. The loans 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. Each of the loan agreements provides for a fixed interest rate of 4.61%. As of September 30, 2019, the Company was in compliance with all loan covenants, with respect to the loans above. 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. The outstanding balance of the four loans was $43,595,000 and $44,584,000 as of September 30, 2019 and December 31, 2018, respectively. On October 1, 2018, the Company through SPE LLC and Goldman Sachs Mortgage Company entered into a $259,000,000 term loan agreement. The Company together with its affiliates HIREIT, Hartman XIX and vREIT XXI, contributed a total of 39 commercial real estate properties ("Properties") to SPE, LLC, a recently formed Delaware limited liability company, subject to the mortgage indebtedness encumbering the Properties, in exchange for membership interests in SPE LLC. Proceeds of the Loan were immediately used to extinguish the existing mortgage indebtedness encumbering the Properties. The term of the loan is five years, comprised of an initial two one written notice, (iii) the properties must have a specified in-place net operating income debt yield and (iv) purchase of an interest rate cap as described below for the exercised option term or terms. The outstanding principal of the loan will bear interest at the one-month LIBOR rate plus 1.8%. As a condition to the funding of the Loan, SPE LLC has entered into an interest rate cap arrangement with SMBC Capital Markets, Inc. that caps LIBOR at 3.75% during the initial term of the Loan. The Loan Agreement contains various customary covenants, including but not limited to financial covenants, covenants requiring monthly deposits in respect of certain property costs, such as taxes, insurance, tenant improvements, and leasing commissions, covenants imposing restrictions on indebtedness and liens, and restrictions on investments and participation in other asset disposition, merger or business combination or dissolution transactions. The Loan Agreement is secured by, among other things, mortgages on the Properties. The Company, HIREIT and Hartman XIX, entered into a guaranty agreement in favor of the lender, whereby each guarantor unconditionally guaranties the full and timely performance of the obligations set forth in the loan agreement and all other loan documents, including the payment of all indebtedness and obligations due under the loan agreement. The following is a summary of the Company’s notes payable as of September 30, 2019, in thousands: Property/Facility Payment (1) Maturity Date Rate September 30, 2019 December 31, 2018 Richardson Heights (2) P&I July 1, 2041 4.61 % $ 17,346 $ 17,760 Cooper Street (2) P&I July 1, 2041 4.61 % 7,468 7,632 Bent Tree Green (2) P&I July 1, 2041 4.61 % 7,468 7,632 Mitchelldale (2) P&I July 1, 2041 4.61 % 11,313 11,560 Promenade (3) — 7,102 Hartman SPE LLC IO October 9, 2020 4.00 % 259,000 259,000 $ 302,595 $ 310,686 Less: unamortized deferred loan costs (4,007) (4,779) $ 298,588 $ 305,907 (1) Principal and interest (P&I) or interest only (IO). (2) 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. (3) Hartman SPE LLC loan proceeds for the repayment of the Promenade loan were in escrow as of October 1, 2018. The loan was paid in full with the refinancing proceeds on February 15, 2019. Loan costs are amortized using the straight-line method over the terms of the loans, which approximates the interest method. Costs which have been deferred consist of the following, in thousands: September 30, 2019 December 31, 2018 Deferred loan costs $ 7,155 $ 7,082 Less: deferred loan cost accumulated amortization (3,148) (2,303) Total cost, net of accumulated amortization $ 4,007 $ 4,779 Interest expense incurred for the three months ended September 30, 2019 and 2018 was $3,433,000 and $1,732,000, respectively, which includes amortization expense of deferred loan costs. Interest expense incurred for the nine months ended September 30, 2019 and 2018 was $10,625,000 and $4,824,000, respectively, which includes amortization expense of deferred loan costs. Interest expense of $321,000 and $421,000 was payable as of September 30, 2019 and December 31, 2018, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. The Company is not in compliance with the financial reporting covenant to provide audited financial statements for Hartman SPE, LLC within 120 days after the end of its fiscal year, which is December 31. The servicer for the lender has extended the time for delivery of the audited annual financial statements. |
Income Per Share
Income Per Share | 9 Months Ended |
Sep. 30, 2019 | |
Earnings Per Share [Abstract] | |
Income Per Share | Income Per Share Basic income per share is computed using net income attributable to common stockholders and the weighted average number of common shares outstanding. Diluted earnings per share 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 per share are included in the diluted earnings per share. Three months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 Numerator: Net income (loss) attributable to common stockholders $ 289 $ (42) $ 381 $ (25) Denominator: Weighted average number of common shares outstanding, basic and diluted 18,418 18,010 18,265 18,009 Basic and diluted loss per common share: Net income (loss) attributable to common stockholders per share $ 0.02 $ — $ 0.02 $ — |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 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 Company has formed a taxable REIT subsidiary which may generate 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. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the accompanying consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions. Taxable income (loss) differs from net income (loss) for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and amortization and rental revenue. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Sep. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 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 Company’s properties. For the three months ended September 30, 2019 and 2018 the Company incurred property management fees and reimbursements of $2,049,108 and $985,000, respectively, and $1,645,000 and $601,000, respectively for leasing commissions owed to our Property Manager. For the nine months ended September 30, 2019 and 2018 the Company incurred property management fees and reimbursements of $6,021,000 and $2,974,000, respectively, and $3,849,000 and $2,663,000, respectively for leasing commissions owed to our Property Manager. For the three and nine months ended September 30, 2019 and 2018, the Company incurred asset management fees of $440,000 and $1,320,000, respectively, owed to the Advisor. Property management fees and reimbursements are included in property operating expense in the accompanying consolidated statements of operations. Asset management fees are captioned as such in the accompanying consolidated statements of operations. For the three and nine months ended September 30, 2019, the Company incurred construction management fees due to the Property Manager of $166,000 and $527,000, respectively. For the three and nine months ended September 30, 2018, the Company incurred construction management fees due to the Property Manager of $58,000 and $185,000, respectively. Construction management fees are included in real estate assets in the consolidated balance sheets. The Company had a balance due to the Property Manager of $2,762,000 and $444,000 as of September 30, 2019 and December 31, 2018, respectively. The Company owed the Advisor $1,642,000 and $1,204,000 for asset management fees as of September 30, 2019 and December 31, 2018, 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 Company’s investment in an asset, if the Company do not own all or a majority of an asset. The Company had net due from other related parties of $1,632,000 and $152,000 as of September 30, 2019 and December 31, 2018, respectively. The Company had a note receivable due from an affiliate, Hartman Short Term Income Properties XIX, Inc. (“Hartman XIX”), of $4,200,000 and $4,200,000 as of September 30, 2019 and December 31, 2018, respectively, which is included in Notes receivable – related party in the accompanying consolidated balance sheets. The original amount of the loan was $4,500,000, which is not evidenced by a promissory note. Interest has been accrued on the loan amount at an annual rate of 6%. The Company recognized interest income on the affiliate note in the amount of $64,000 and $67,000 for the three months ended September 30, 2019 and 2018, respectively, which is included in interest and dividend income in the accompanying consolidated statements of operations. The Company recognized interest income on the affiliate note in the amount of $189,000 and $195,000 for the nine months ended September 30, 2019 and 2018, respectively, The Company owns 1,561,523 shares of the common stock of HIREIT which it acquired for cash consideration of $8,978,000. The Company’s investment in HIREIT is accounted for under the cost method. The Company’s approximately 11% ownership interest in HIREIT is less than a controlling stake, and is reflected as “Investment in Affiliate” on the accompanying consolidated balance sheets. The Company received dividend distributions from HIREIT of $106,000 and $319,000 for the three and nine months ended September 30, 2019 and 2018, respectively, which is included in interest and dividend income in the accompanying consolidated statements of operations. In May 2016, the Company, through its taxable REIT subsidiary, Hartman TRS, Inc. (“TRS”), loaned $7,231,000 pursuant to a promissory note in the face amount of up to $8,820,000 to Hartman Retail II Holdings Company, Inc. (“Retail II Holdings”), an affiliate of the Advisor and the Property Manager, in connection with the acquisition of a retail shopping center by Hartman Retail II DST, a Delaware statutory trust sponsored by the Property Manager. Pursuant to the terms of the promissory note, TRS received a two percent (2%) origination fee of amounts advanced under the promissory note, and interest at ten percent (10%) per annum on the outstanding principal balance. The outstanding principal balance of the promissory note will be repaid as investor funds are raised by Hartman Retail II DST. The promissory note matured on May 17, 2019. This note is due on demand. This note receivable had an outstanding balance of $1,526,000 and $2,476,000 as of September 30, 2019 and December 31, 2018, respectively, which is included in Notes receivable – related party in the accompanying consolidated balance sheets. For the three months ended September 30, 2019 and 2018, respectively, the Company recognized interest income on this affiliate note in the amount of $49,000 and $112,000, respectively, which is included in interest and dividend income in the accompanying consolidated statements of operations. For the nine months ended September 30, 2019 and 2018, the Company recognized interest income on this affiliate note in the amount of $168,000 and $368,000, respectively. In February 2019, the Company through TRS, loaned $7,226,000 pursuant to a promissory note in the face amount of up to $7,500,000 to Hartman Retail III Holdings Company, Inc. (“Retail III Holdings”), an affiliate of the Advisor and the Property Manager, in connection with the acquisition of a retail shopping center by Hartman Retail III DST, a Delaware statutory trust sponsored by the Advisor. This note receivable had an outstanding balance of $7,226,000 as of September 30, 2019, which is included in Notes receivable – related party in the accompanying consolidated balance sheets. Pursuant to the terms of the promissory note, TRS receives a two percent (2%) origination fee of amounts advanced under the promissory note, and interest at ten percent (10%) per annum on the outstanding principal balance. The outstanding principal balance of the promissory note will be repaid as investor funds are raised by Hartman Retail III DST. The maturity date of the promissory note is February 29, 2020. The Company recognized interest income on this affiliate note in the amount of $425,000 for the nine months ended September 30, 2019, which is included in interest and dividend income in the accompanying consolidated statements of operations. In March 2019, the Company through TRS, loaned $3,320,000 pursuant to a promissory note in the face amount of up to $3,500,000 to Hartman Ashford Bayou, LLC (“Ashford Bayou”), an affiliate of the Advisor and the Property Manager, in connection with the acquisition of office building by Ashford Bayou, a wholly owned subsidiary of Hartman Total Return, Inc. This note receivable had an outstanding balance of $3,320,000 as of September 30, 2019, which is included in Notes receivable – related party in the accompanying consolidated balance sheets. Pursuant to the terms of the promissory note, TRS receives a two percent (2%) origination fee of amounts advanced under the promissory note, and interest at ten percent (10%) per annum on the outstanding principal balance. The outstanding principal balance of the promissory note will be repaid as investor funds are raised by Hartman Total Return, Inc. The maturity date of the promissory note is March 31, 2020. The Company recognized interest income on this affiliate note in the amount of $176,000 for the nine months ended September 30, 2019, which is included in interest and dividend income in the accompanying consolidated statements of operations. Variable interest entities (“VIEs”) are defined as entities with a level of invested equity that is not sufficient to fund future operations on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For identified VIEs, an assessment must be made to determine which party to the VIE, if any, has both the power to direct the activities of the VIE that most significantly impacts the performance of the VIE and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company is not deemed to be the primary beneficiary of Retail II Holdings, Retail III Holdings or Ashford Bayou, each of which qualifies as a VIE. Accordingly, the assets and liabilities and revenues and expenses of Retail II Holdings , Retail III Holdings and Ashford Bayou have not been included in the accompanying consolidated financial statements. The Board of Directors voted to acquire an additional 3.42% ownership interest of Hartman SPE, LLC from Hartman vREIT XXI, Inc. in exchange for 700,302 shares of the Company’s common stock with a total value of $8,858,826 ($12.65 per share). The exchange increased the Company’s ownership interest in Hartman SPE, LLC from 32.74% to 36.16%. The transaction was effective March 1, 2019. |
Stockholders' Equity
Stockholders' Equity | 9 Months Ended |
Sep. 30, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | Stockholders’ Equity Under the Company’s articles of incorporation, the Company has authority to issue 750,000,000 shares of common stock, $0.001 par value per share, and 200,000,000 shares of preferred stock, $0.001 par value per share. 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 Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights. Preferred Stock Under the Company’s articles of incorporation, the Company’s 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 has 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 September 30, 2019, and December 31, 2018, respectively, the Company has issued 1,000 shares of convertible preferred stock to the Advisor at a price of $10.00 per share. Common Stock Issuable Upon Conversion of Convertible Preferred Stock The convertible preferred stock issued to the Advisor will convert to shares of the Company’s common stock if (1) the Company has made total distributions on then outstanding shares of the Company’s 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 Company’s common stock plus the aggregate market value of the Company’s common stock (based on the 30-day average closing meets the same 6% performance threshold, or (3) the Company’s advisory agreement with the Advisor 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 Company’s 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 Company’s 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 shares of restricted common stock to non-employee directors as compensation in part for their service as members of the board of directors of the Company. These shares are fully vested when granted. These shares may not be sold while an independent director is serving on the board of directors. For the three and nine months ended September 30, 2019 and 2018, respectively, the Company granted 1,500 shares of restricted common stock to independent directors as compensation for services and recognized $19,000 as stock-based compensation expense for each period. Share based compensation expense is based upon the estimated fair value per share. Stock-based compensation expense is included in general and administrative expenses in the accompanying consolidated statements of operations. Distributions The following table reflects the total distributions the Company has paid, including the total amount paid, thousands, and amount paid per common share, in each indicated quarter: Quarter Paid Distributions per Common Share Total Distributions 2019 3 rd Quarter $ 0.175 $ 3,224 2 nd Quarter 0.175 3,225 1 st Quarter 0.175 3,141 Total 2019 year to date $ 0.525 $ 9,590 2018 4 th Quarter $ 0.175 $ 3,101 3 rd Quarter 0.175 3,151 2 nd Quarter 0.175 3,152 1 st Quarter 0.175 3,151 Total 2018 $ 0.700 $ 12,555 |
Incentive Award Plan
Incentive Award Plan | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Incentive Award Plan | Incentive Award 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 Company’s common stock for the issuance of awards under the Company’s stock incentive plan, but in no event more than ten (10%) percent of the Company’s issued and outstanding shares. The number of shares reserved under the Company’s stock incentive plan is also subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. Generally, shares that are forfeited or canceled from awards under the Company’s stock incentive plan also will be available for future awards. Incentive Plan compensation expense is included in general and administrative expenses in the accompanying consolidated statements of operations. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 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 Company’s real estate portfolio, and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other providers. Litigation The Company is subject to various claims and legal actions that arise in the ordinary course of business. Management of the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position of the Company. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent EventsThe Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2018 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of September 30, 2019 have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X, on a basis consistent with the annual audited consolidated financial statements. The consolidated financial statements presented herein reflect all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the financial position of the Company as of September 30, 2019, and the results of consolidated operations for the three and nine months ended September 30, 2019 and 2018, the consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and the consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018. The results of the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019. The consolidated financial statements herein are condensed and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These unaudited consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries, and Hartman SPE, LLC. All significant intercompany balances and transactions have been eliminated. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents on the accompanying consolidated balance sheets include all cash and liquid investments with maturities of three months or less. Cash and cash equivalents as of September 30, 2019 and December 31, 2018 consisted of demand deposits at commercial banks. We maintain accounts which may from time to time exceed federally insured limits. We have not experienced any losses in these accounts and believe that the Company is not exposed to any significant credit risk and regularly monitors the financial stability of these financial institutions. |
Restricted Cash | Restricted Cash Restricted cash on the accompanying consolidated balance sheets consists of amounts escrowed for future real estate taxes, insurance, capital expenditures and debt service, as required by certain of our mortgage debt agreements. |
Financial Instruments | Financial InstrumentsThe accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, accrued rent and accounts receivable, accounts payable and accrued expenses and balances due to/due from related parties, as well as related party notes receivable. The Company considers the carrying value of these financial instruments to approximate their respective fair values due to their short-term nature. |
Revenue Recognition | Revenue Recognition The Company’s leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation. The Company’s accrued rents are included in accrued rent and accounts receivable, net. The Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Additionally, cost recoveries from tenants are included in the Tenant Reimbursement and Other Revenues line item in the consolidated statement of operations in the period the related costs are incurred. As of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, " Revenue from Contracts with Customers |
Real Estate | Real Estate Allocation of Purchase Price of Acquired Assets Upon the acquisition of real properties, it is the Company’s 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 income over the remaining expected terms of the respective leases. The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases. The 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 Company’s reported net loss. Real Estate Joint Ventures and Partnerships To determine the method of accounting for partially owned real estate joint ventures and partnerships, management determines whether an entity is a VIE and, if so, determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity’s significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the design of the entity structure, the nature of the entity’s operations, future cash flow projections, the entity’s financing and capital structure, and contractual relationships and terms. We consolidate a VIE when we have determined that we are the primary beneficiary. Primary risks associated with our involvement with our VIEs include the potential funding of the entities’ debt obligations or making additional contributions to fund the entities’ operations or capital activities. Partially owned, non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements. In determining if we have a controlling financial interest, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. Partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest, but have the ability to exercise significant influence, are accounted for using the equity method. Management continually analyzes and assesses reconsideration events, including changes in the factors mentioned above, to determine if the consolidation or equity method treatment remains appropriate. Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years’ remaining calculated on terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there is no impairment indicated in the carrying value of our real estate assets as of September 30, 2019 and December 31, 2018. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. |
Fair Value Measurement | Fair Value 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 Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. |
Accrued Rent and Accounts Receivable | Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. |
Deferred Leasing Commission Costs | Deferred Leasing Commission Costs Leasing commissions are amortized using the straight-line method over the term of the related lease agreements. |
Goodwill | Goodwill GAAP requires 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 applies a one-step quantitative test to determine if the estimated fair value is less than the carrying amount. If the carrying amount exceeds the estimated fair value, the Company will record a goodwill impairment equal to such excess, not to exceed the total amount of goodwill. |
Stock-Based Compensation | Stock-Based Compensation The Company follows Accounting Standards Codification ("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 estimated grant date fair value, as of the grant date of the Company’s common stock, of the equity or liability instruments issued. Stock-based compensation expense are recorded over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. |
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 Company’s 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 Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and will continue to operate in such a manner as to qualify for treatment as a REIT. The Company has formed a taxable REIT subsidiary which may generate 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. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the accompanying consolidated financial statements. The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions. |
Income Per Share | Income Per Share The computations of basic and diluted income per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Company’s potentially dilutive securities include preferred shares that are convertible into the Company’s common stock. As of September 30, 2019 and 2018, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net income per share for the nine months ended September 30, 2019 and 2018 because no shares are issuable and inclusion of such potentially dilutive securities would have been anti-dilutive. |
Concentration of Risk | Concentration of Risk The geographic concentration of the Company’s real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocation of businesses, increased competition or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders. |
Reclassification | Reclassification Certain items in the comparative consolidated financial statements have been reclassified to conform to the presentation adopted in the current period. Restricted cash reporting line was added on the face of the consolidated balance sheets. The balance currently reported as restricted cash was reported previously in the prepaid expenses and other assets. |
Recently Adopted and Not Yet Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases, along with various subsequent ASUs, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in the same manner as the previous guidance for operating leases. The Company adopted ASU 2016-02 on January 1, 2019, using the modified retrospective transition method such that we applied the standard as of the adoption date. The Company adopted the new standard using the practical expedient package which allowed the Company, as both the lessor and lessee to 1) not reassess whether any expired or existing contracts are or contain leases; 2) not reassess the lease classification for any expired or existing leases; and 3) not reassess initial direct costs for any existing leases. As of September 30, 2019, the Company, through SPE LLC has a ground lease for a parking lot located adjacent to the property at 601 Sawyer, Houston, Texas. The parking lot lease agreement expires at the end of September 2020. The Sawyer property is included in the Company’s consolidated financial statements as of September 30, 2019 and for the nine months ended September 30, 2019 because of the consolidation of SPE with the Company. SPE commenced operations and is consolidated with the Company for periods beginning after September 30, 2018. Lease payments under the parking lot lease agreement are $3,500 per month. As of September 30, 2019, 12 monthly payments remain under the lease agreement for a total of $42,000. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In connection with the new revenue guidance (ASC 606), the new revenue standard will apply to other components of revenue deemed to be non-lease components, such as reimbursement for certain expenses which are based on usage. Under the new guidance, we will continue to recognize the lease components of lease revenue on a straight-line basis over our respective lease terms as we do under prior guidance. However, we would recognize these non-lease components under the new revenue guidance as the related services are delivered. As a result, the total revenue recognized over time would not differ under the new guidance. This does not result in a difference from how the Company has historically recognized revenue for these lease and non-lease components. Additionally, ASU 2016-02 requires that lessees and lessors capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. Under ASU 2016-02, allocated payroll costs and other costs that are incurred regardless of whether the lease is obtained will no longer be capitalized as initial direct costs and instead will be expensed as incurred. This does not result in a difference from how the Company has historically recognized lease acquisition costs. On January 1, 2019, the Company adopted ASU 2018-07, "Improvements to Non-employee Stock-Based Payment Accounting." The updated guidance simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. The adoption of this guidance had no impact on our consolidated financial statements. On January 1, 2019, the Company adopted ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities". The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of either adopting the new standard early using a modified retrospective transition method in any interim period after issuance of the update, or alternatively adopting the new standard for fiscal years beginning after December 15, 2018. The adoption of this guidance had no impact on our consolidated financial statements. On January 1, 2018, the Company adopted ASU 2016-17, “Interest Held Through Related Parties That Are Under Common Control,” issued by the FASB, which amends the accounting guidance when determining the treatment of certain VIE’s to include the interest of related parties under common control in a VIE when considering whether or not the reporting entity is the primary beneficiary of the VIE when considering consolidation. In connection with our adoption of ASU 2016-17, we have determined that SPE LLC is a VIE and that the Company is the primary beneficiary. Accordingly, the accounts of SPE LLC are included in our consolidated financial position as of December 31, 2018 and beginning October 1, 2018, in our consolidated results of operations. The Company and its affiliates, Hartman XIX and HIREIT, are guarantors of the SPE LLC note payable. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The updated guidance requires measurement and recognition of expected credit losses for financial assets, including trade and other receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the current guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Generally, the pronouncement requires a modified retrospective method of adoption. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures when adopted. In identifying all of our financial instruments covered under this guidance, the majority of our instruments result from operating leasing transactions, which are not within the scope of the new standard and are to remain governed by the recently issued leasing guidance and other previously issued guidance. We do not believe the adoption of this standard will have a material impact to our consolidated financial statements. |
Real Estate (Tables)
Real Estate (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Real Estate [Abstract] | |
Schedule of Real Estate Assets | The Company’s real estate assets consisted of the following, in thousands: September 30, 2019 December 31, 2018 Land $ 145,050 $ 145,050 Buildings and improvements 345,684 337,272 In-place lease value intangible 100,790 100,790 591,524 583,112 Less: accumulated depreciation and amortization (110,493) (89,840) Total real estate assets $ 481,031 $ 493,272 |
Schedule of Intangible Assets Acquired | The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows, in thousands: September 30, 2019 December 31, 2018 In-place lease value intangible $ 100,790 $ 100,790 In-place leases – accumulated amortization (66,167) (57,989) Acquired lease intangible assets, net $ 34,623 $ 42,801 |
Accrued Rent and Accounts Rec_2
Accrued Rent and Accounts Receivable, net (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Receivables [Abstract] | |
Schedule of Acquired Indefinite-lived Intangible Assets | Accrued rent and accounts receivable, net, consisted of the following, in thousands: September 30, 2019 December 31, 2018 Tenant receivables $ 3,974 $ 2,931 Accrued rent 9,359 8,386 Allowance for uncollectible accounts (1,748) (1,710) Affiliate interest receivable 2,883 2,274 Accrued rents and accounts receivable, net $ 14,468 $ 11,881 |
Deferred Leasing Commission C_2
Deferred Leasing Commission Costs, net (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Summary of Deferred Leasing Commission Costs | Costs which have been deferred consist of the following, in thousands: September 30, 2019 December 31, 2018 Deferred leasing commissions costs $ 16,521 $ 12,671 Less: accumulated amortization (6,098) (4,370) Deferred leasing commission costs, net $ 10,423 $ 8,301 |
Notes Payable (Tables)
Notes Payable (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
Summary of Notes Payable | The following is a summary of the Company’s notes payable as of September 30, 2019, in thousands: Property/Facility Payment (1) Maturity Date Rate September 30, 2019 December 31, 2018 Richardson Heights (2) P&I July 1, 2041 4.61 % $ 17,346 $ 17,760 Cooper Street (2) P&I July 1, 2041 4.61 % 7,468 7,632 Bent Tree Green (2) P&I July 1, 2041 4.61 % 7,468 7,632 Mitchelldale (2) P&I July 1, 2041 4.61 % 11,313 11,560 Promenade (3) — 7,102 Hartman SPE LLC IO October 9, 2020 4.00 % 259,000 259,000 $ 302,595 $ 310,686 Less: unamortized deferred loan costs (4,007) (4,779) $ 298,588 $ 305,907 (1) Principal and interest (P&I) or interest only (IO). (2) 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. (3) Hartman SPE LLC loan proceeds for the repayment of the Promenade loan were in escrow as of October 1, 2018. The loan was paid in full with the refinancing proceeds on February 15, 2019. |
Summary of Deferred Loan Costs | Loan costs are amortized using the straight-line method over the terms of the loans, which approximates the interest method. Costs which have been deferred consist of the following, in thousands: September 30, 2019 December 31, 2018 Deferred loan costs $ 7,155 $ 7,082 Less: deferred loan cost accumulated amortization (3,148) (2,303) Total cost, net of accumulated amortization $ 4,007 $ 4,779 |
Income Per Share (Tables)
Income Per Share (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Earnings Per Share [Abstract] | |
Schedule of Earnings Per Share | Diluted earnings per share 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 per share are included in the diluted earnings per share. Three months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 Numerator: Net income (loss) attributable to common stockholders $ 289 $ (42) $ 381 $ (25) Denominator: Weighted average number of common shares outstanding, basic and diluted 18,418 18,010 18,265 18,009 Basic and diluted loss per common share: Net income (loss) attributable to common stockholders per share $ 0.02 $ — $ 0.02 $ — |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Equity [Abstract] | |
Summary of Distributions | The following table reflects the total distributions the Company has paid, including the total amount paid, thousands, and amount paid per common share, in each indicated quarter: Quarter Paid Distributions per Common Share Total Distributions 2019 3 rd Quarter $ 0.175 $ 3,224 2 nd Quarter 0.175 3,225 1 st Quarter 0.175 3,141 Total 2019 year to date $ 0.525 $ 9,590 2018 4 th Quarter $ 0.175 $ 3,101 3 rd Quarter 0.175 3,151 2 nd Quarter 0.175 3,152 1 st Quarter 0.175 3,151 Total 2018 $ 0.700 $ 12,555 |
Organization and Business (Deta
Organization and Business (Details) $ / shares in Units, ft² in Millions | Jul. 21, 2017$ / shares | Sep. 30, 2019ft²property$ / shares | Dec. 31, 2018$ / shares | Oct. 01, 2018USD ($)property | Sep. 30, 2018ft²property |
Schedule of Equity Method Investments [Line Items] | |||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.001 | $ 0.001 | |||
XIX Merger Agreement | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 9,171.98 | ||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | ||||
XIX Merger Agreement | 8% Cumulative Preferred Stock | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 1.238477 | ||||
Preferred stock dividend rate, percent | 8.00% | ||||
XIX Merger Agreement | 9% Cumulative Preferred Stock | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 1.238477 | ||||
Preferred stock dividend rate, percent | 9.00% | ||||
HIREIT Merger | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 0.752222 | ||||
Common Stock | HIREIT Merger | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 0.752222 | ||||
Subordinated Common Stock | HIREIT Merger | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Shares conversion ratio | 0.863235 | ||||
Texas | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Number of commercial properties | 43 | 17 | |||
Number of real estate properties | 3 | 3 | |||
Area of real estate property (in sq ft) | ft² | 6.7 | 2.9 | |||
Richardson, Arlington And Dallas, Texas | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Number of real estate properties | 15 | 9 | |||
Houston, Texas | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Number of real estate properties | 25 | 6 | |||
San Antonio, Texas | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Number of real estate properties | 3 | 2 | |||
Variable Interest Entity, Not Primary Beneficiary | Hartman SPE, LLC | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Number of real estate properties | 39 | ||||
Hartman SPE, LLC | Notes Payable to Banks | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Debt instrument, face amount | $ | $ 259,000,000 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Details) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2019USD ($)monthly_payment | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)monthly_payment | Sep. 30, 2018USD ($) | Dec. 31, 2018USD ($) | |
Property, Plant and Equipment [Line Items] | |||||
Impairment of real estate | $ 0 | $ 0 | |||
Goodwill impairment loss | $ 0 | $ 0 | 0 | $ 0 | |
Deferred tax benefit | 0 | $ 0 | 0 | $ 0 | |
Deferred tax asset | 0 | 0 | $ 0 | ||
Monthly lease payment amount | $ 3,500 | $ 3,500 | |||
Number of payments remaining under operating lease | monthly_payment | 12 | 12 | |||
Operating lease liability | $ 42,000 | $ 42,000 | |||
Building and Building Improvements | Minimum | |||||
Property, Plant and Equipment [Line Items] | |||||
Estimated useful life | 5 years | ||||
Building and Building Improvements | Maximum | |||||
Property, Plant and Equipment [Line Items] | |||||
Estimated useful life | 39 years |
Real Estate - Assets (Details)
Real Estate - Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Real Estate [Abstract] | ||
Land | $ 145,050 | $ 145,050 |
Buildings and improvements | 345,684 | 337,272 |
In-place lease value intangible | 100,790 | 100,790 |
Real estate assets, at cost | 591,524 | 583,112 |
Less: accumulated depreciation and amortization | (110,493) | (89,840) |
Real estate assets, net | $ 481,031 | $ 493,272 |
Real Estate - Additional Inform
Real Estate - Additional Information (Details) ft² in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019USD ($)ft²property | Sep. 30, 2018USD ($)ft²property | Sep. 30, 2019USD ($)ft²property | Sep. 30, 2018USD ($)ft²property | |
Subsidiary of Limited Liability Company or Limited Partnership [Line Items] | ||||
Depreciation | $ | $ 4,116,000 | $ 1,835,170 | $ 12,337,000 | $ 5,215,176 |
Amortization expense of in-place lease value intangible | $ | 2,873,000 | 986,273 | 8,315,000 | 5,064,000 |
Asset management fees paid to Advisor | $ | $ 440,000 | $ 1,320,000 | $ 440,000 | $ 1,320,000 |
Texas | ||||
Subsidiary of Limited Liability Company or Limited Partnership [Line Items] | ||||
Number of commercial properties | 43 | 17 | 43 | 17 |
Area of real estate property (in sq ft) | ft² | 6.7 | 2.9 | 6.7 | 2.9 |
Number of real estate properties | 3 | 3 | 3 | 3 |
Richardson, Arlington And Dallas, Texas | ||||
Subsidiary of Limited Liability Company or Limited Partnership [Line Items] | ||||
Number of real estate properties | 15 | 9 | 15 | 9 |
Houston, Texas | ||||
Subsidiary of Limited Liability Company or Limited Partnership [Line Items] | ||||
Number of real estate properties | 25 | 6 | 25 | 6 |
San Antonio, Texas | ||||
Subsidiary of Limited Liability Company or Limited Partnership [Line Items] | ||||
Number of real estate properties | 3 | 2 | 3 | 2 |
Real Estate - In-place Intangib
Real Estate - In-place Intangible Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Real Estate [Abstract] | ||
In-place lease value intangible | $ 100,790 | $ 100,790 |
In-place leases – accumulated amortization | (66,167) | (57,989) |
Acquired lease intangible assets, net | $ 34,623 | $ 42,801 |
Accrued Rent and Accounts Rec_3
Accrued Rent and Accounts Receivable, net - Summary of Accounts Receivable (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Receivables [Abstract] | ||
Tenant receivables | $ 3,974 | $ 2,931 |
Accrued rent | 9,359 | 8,386 |
Allowance for uncollectible accounts | (1,748) | (1,710) |
Affiliate interest receivable | 2,883 | 2,274 |
Deferred leasing commission costs, net | $ 14,468 | $ 11,881 |
Accrued Rent and Accounts Rec_4
Accrued Rent and Accounts Receivable, net - Additional Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Receivables [Abstract] | |||||
Allowance for uncollectible accounts | $ 1,748,000 | $ 1,748,000 | $ 1,710,000 | ||
Bad debt expense | 140,000 | $ 481,000 | 39,000 | $ 477,000 | |
Write off of debt issuance costs | $ 0 | $ 0 | $ 0 | $ 0 |
Deferred Leasing Commission C_3
Deferred Leasing Commission Costs, net (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Deferred leasing commissions costs | $ 16,521 | $ 12,671 |
Less: accumulated amortization | (6,098) | (4,370) |
Deferred leasing commission costs, net | $ 10,423 | $ 8,301 |
Notes Payable - Additional Info
Notes Payable - Additional Information (Details) | Oct. 01, 2018USD ($)propertyextension | Sep. 30, 2019USD ($) | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)loan_outstanding | Sep. 30, 2018USD ($) | Dec. 31, 2018USD ($) |
Short-term Debt [Line Items] | ||||||
Outstanding balance | $ 302,595,000 | $ 302,595,000 | $ 310,686,000 | |||
Interest expense | 3,433,000,000 | $ 1,732,000,000 | 10,625,000 | $ 4,824,000 | ||
Interest expense payable | $ 321,000 | $ 321,000 | 421,000 | |||
Variable Interest Entity, Not Primary Beneficiary | Hartman SPE, LLC | ||||||
Short-term Debt [Line Items] | ||||||
Number of real estate properties | property | 39 | |||||
Secured debt | Richardson Heights, Cooper Street, Bent Tree Green And Mitchelldale Property Loans | ||||||
Short-term Debt [Line Items] | ||||||
Number of cross-collateralized term loan agreements | loan_outstanding | 4 | |||||
Amortization term | 27 years | |||||
Fixed interest rate | 4.61% | 4.61% | ||||
Outstanding balance | $ 43,595,000 | $ 43,595,000 | $ 44,584,000 | |||
Notes Payable to Banks | Hartman SPE, LLC | ||||||
Short-term Debt [Line Items] | ||||||
Debt instrument, face amount | $ 259,000,000 | |||||
Term of loan | 5 years | |||||
Initial term of loan | 2 years | |||||
Number of extensions | extension | 3 | |||||
Extension term | 1 year | |||||
Notes Payable to Banks | Minimum | Hartman SPE, LLC | London Interbank Offered Rate (LIBOR) | ||||||
Short-term Debt [Line Items] | ||||||
Basis spread | 1.80% | |||||
Notes Payable to Banks | Maximum | Hartman SPE, LLC | London Interbank Offered Rate (LIBOR) | ||||||
Short-term Debt [Line Items] | ||||||
Basis spread | 3.75% |
Notes Payable - Summary of Note
Notes Payable - Summary of Notes Payable (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 302,595 | $ 310,686 |
Less: unamortized deferred loan costs | (4,007) | (4,779) |
Long-term debt | $ 298,588 | 305,907 |
Richardson Heights | ||
Debt Instrument [Line Items] | ||
Effective interest rate | 4.61% | |
Long-term debt, gross | $ 17,346 | 17,760 |
Cooper Street | ||
Debt Instrument [Line Items] | ||
Effective interest rate | 4.61% | |
Long-term debt, gross | $ 7,468 | 7,632 |
Bent Tree Green | ||
Debt Instrument [Line Items] | ||
Effective interest rate | 4.61% | |
Long-term debt, gross | $ 7,468 | 7,632 |
Mitchelldale | ||
Debt Instrument [Line Items] | ||
Effective interest rate | 4.61% | |
Long-term debt, gross | $ 11,313 | 11,560 |
Promenade | ||
Debt Instrument [Line Items] | ||
Effective interest rate | ||
Long-term debt, gross | $ 0 | 7,102 |
Hartman SPE, LLC | ||
Debt Instrument [Line Items] | ||
Effective interest rate | 4.00% | |
Long-term debt, gross | $ 259,000 | $ 259,000 |
Notes Payable - Deferred Loan C
Notes Payable - Deferred Loan Costs (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Debt Disclosure [Abstract] | ||
Deferred loan costs | $ 7,155 | $ 7,082 |
Deferred loan cost accumulated | (3,148) | (2,303) |
Total cost, net of accumulated amortization | $ 4,007 | $ 4,779 |
Income Per Share (Details)
Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Numerator: | ||||
Net income (loss) attributable to common stockholders | $ 289 | $ (42) | $ 381 | $ (25) |
Denominator: | ||||
Weighted average number of common shares outstanding, basic and diluted (in shares) | 18,418 | 18,010 | 18,265 | 18,009 |
Basic and diluted loss per common share: | ||||
Net income attributable to common stockholders per share (in dollars per share) | $ 0.02 | $ 0 | $ 0.02 | $ 0 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |||||
Deferred tax benefit | $ 0 | $ 0 | $ 0 | $ 0 | |
Deferred tax asset | $ 0 | $ 0 | $ 0 |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) | Mar. 01, 2019 | Feb. 28, 2019 | Mar. 31, 2019 | Feb. 28, 2019 | May 31, 2016 | Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 |
Related Party Transaction [Line Items] | ||||||||||
Property management fees and reimbursements due | $ 2,049,108 | $ 985,000 | $ 6,021,000 | $ 2,974,000 | ||||||
Payments for leasing commissions | 1,645,000 | 601,000 | 3,849,000 | 2,663,000 | ||||||
Due to the property manager | 2,762,000 | 2,762,000 | $ 444,000 | |||||||
Due to related parties | 2,772,000 | 2,772,000 | 1,496,000 | |||||||
Due from other related parties | 1,632,000 | $ 1,632,000 | 152,000 | |||||||
Hartman SPE, LLC | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Share price (in dollars per share) | $ 12.65 | |||||||||
Common Stock | Hartman SPE, LLC | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Stock issued in exchange for ownership (in shares) | 700,302 | |||||||||
Value of shares issued | $ 8,858,826 | |||||||||
Chief Executive Officer | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Ownership percentage | 20.00% | |||||||||
Allen R Hartman | Affiliated Entity | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Ownership percentage | 70.00% | |||||||||
Property Manager | Affiliated Entity | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Ownership percentage | 30.00% | |||||||||
Texas Limited Liability Company | Affiliated Entity | Asset Management Fees Payable | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Expenses from transactions with related party | 440,000 | 440,000 | $ 1,320,000 | 1,320,000 | ||||||
Due to related parties | 1,642,000 | $ 1,642,000 | 1,204,000 | |||||||
Due to related parties, monthly fees, percentage of asset cost or value | 0.0625% | |||||||||
Texas Limited Liability Company | Affiliated Entity | Construction Management Fees Payable | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Expenses from transactions with related party | 166,000 | 58,000 | $ 527,000 | 185,000 | ||||||
Hartman XIX | Affiliated Entity | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Interest income, related parties | 64,000 | 67,000 | 189,000 | 195,000 | ||||||
Hartman XIX | Affiliated Entity | Loan from Company to related party | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Loans receivable | 4,200,000 | 4,200,000 | 4,200,000 | |||||||
Loans receivable, face amount | $ 4,500,000 | $ 4,500,000 | ||||||||
Loans receivable, interest rate | 6.00% | |||||||||
HIREIT, Inc. | Affiliated Entity | Acquisition Of Related Party Common Stock | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Ownership percentage | 11.00% | |||||||||
HIREIT, Inc. | Affiliated Entity | Acquisition Of Related Party Common Stock | Common Stock | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Shares acquired (in shares) | 1,561,523 | 1,561,523 | ||||||||
Shares acquired, value | $ 8,978,000 | $ 8,978,000 | ||||||||
HIREIT, Inc. | Affiliated Entity | Dividend Distributions | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Amount of transaction with related party | 106,000 | 106,000 | 319,000 | 319,000 | ||||||
Hartman TRS, Inc. | Affiliated Entity | Loan From Company To Related Party Hartman Retail II Holdings Co | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Loans receivable | $ 7,231,000 | 1,526,000 | 1,526,000 | $ 2,476,000 | ||||||
Loans receivable, face amount | $ 8,820,000 | |||||||||
Loans receivable, interest rate | 10.00% | |||||||||
Interest income, related parties | 49,000 | $ 112,000 | 168,000 | $ 368,000 | ||||||
Origination fees, percentage | 2.00% | |||||||||
Hartman TRS, Inc. | Affiliated Entity | Loan From Company To Related Party Hartman Retail III Holdings Co | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Loans receivable | $ 7,226,000 | $ 7,226,000 | 7,226,000 | 7,226,000 | ||||||
Loans receivable, face amount | $ 7,500,000 | $ 7,500,000 | ||||||||
Loans receivable, interest rate | 10.00% | |||||||||
Interest income, related parties | 425,000 | |||||||||
Origination fees, percentage | 2.00% | 2.00% | ||||||||
Hartman TRS, Inc. | Affiliated Entity | Loan from Company to related party | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Loans receivable | $ 3,320,000 | $ 3,320,000 | 3,320,000 | |||||||
Loans receivable, face amount | $ 3,500,000 | |||||||||
Loans receivable, interest rate | 10.00% | |||||||||
Interest income, related parties | $ 176,000 | |||||||||
Origination fees, percentage | 2.00% | |||||||||
Variable Interest Entity, Not Primary Beneficiary | Hartman SPE, LLC | ||||||||||
Related Party Transaction [Line Items] | ||||||||||
Additional ownership percentage | 3.42% | |||||||||
Ownership interest | 36.16% | 32.74% |
Stockholders' Equity - Narrativ
Stockholders' Equity - Narrative (Details) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2019USD ($)$ / sharesshares | Sep. 30, 2018USD ($)shares | Sep. 30, 2019USD ($)vote$ / sharesshares | Sep. 30, 2018USD ($)shares | Mar. 31, 2019$ / sharesshares | Dec. 31, 2018$ / sharesshares | |
Equity [Abstract] | ||||||
Common stock, shares authorized (in shares) | 750,000,000 | 750,000,000 | 750,000,000 | |||
Common stock, par value (in dollars per share) | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | |||
Preferred stock, shares authorized (in shares) | 200,000,000 | 200,000,000 | 200,000,000 | |||
Preferred stock, par value (in dollars per share) | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | |||
Number or votes per share | vote | 1 | |||||
Class of Stock [Line Items] | ||||||
Preferred stock, shares issued (in shares) | 1,000 | 1,000 | 1,000 | |||
Grants in period (shares) | 1,500 | 1,500 | ||||
Stock-based compensation expense | $ | $ 19 | $ 19 | $ 19 | |||
Convertible Preferred Stock | ||||||
Class of Stock [Line Items] | ||||||
Preferred stock, shares issued (in shares) | 1,000 | 1,000 | 1,000 | 1,000 | ||
Share price (in dollars per share) | $ / shares | $ 10 | $ 10 | $ 10 | $ 10 | ||
Conversion terms, cumulative annual return on issue price, percentage | 6.00% | |||||
Conversion terms, performance threshold | 6.00% | |||||
Conversion terms, percentage of excess enterprise value | 15.00% | |||||
Restricted common stock | ||||||
Class of Stock [Line Items] | ||||||
Grants in period (shares) | 1,500 | 1,500 | 1,500 | 1,500 | ||
Stock-based compensation expense | $ | $ 19 | $ 19 | $ 19 |
Stockholders' Equity - Distribu
Stockholders' Equity - Distributions (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
Sep. 30, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jun. 30, 2018 | Mar. 31, 2018 | Sep. 30, 2019 | Dec. 31, 2018 | |
Equity [Abstract] | |||||||||
Distributions per Common Share (in dollars per share) | $ 0.175 | $ 0.175 | $ 0.175 | $ 0.175 | $ 0.175 | $ 0.175 | $ 0.175 | $ 0.525 | $ 0.700 |
Total Distributions | $ 3,224 | $ 3,225 | $ 3,141 | $ 3,101 | $ 3,151 | $ 3,152 | $ 3,151 | $ 9,590 | $ 12,555 |
Incentive Award Plan (Details)
Incentive Award Plan (Details) | 9 Months Ended |
Sep. 30, 2019shares | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Shares reserved for issuance (in shares) | 5,000,000 |
Percentage of outstanding stock maximum | 10.00% |