Document and Entity Information
Document and Entity Information - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Jun. 30, 2016 | |
Document and Entity Information: | ||
Entity Registrant Name | Hartman vREIT XXI, Inc. | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Trading Symbol | hartman | |
Amendment Flag | false | |
Entity Central Index Key | 1,654,948 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 18,000,000 | |
Entity Public Float | $ 1,800,000 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
ASSETS | ||
Real estateInvestment property at cost | $ 7,229,751 | |
Real estate investment property accumulated depreciation | (20,016) | |
Real estate investment property at cost, net | 7,209,735 | |
Cash and cash equivalents | 1,788,209 | $ 97,810 |
Investment in unconsolidated joint venture | 1,376,439 | |
Restricted cash | 366,201 | 320,775 |
Accrued rent and accounts receivable, net | 14,823 | |
Prepaid expenses and other assets | 20,402 | |
Due from related parties | 55,899 | |
Total assets | 9,455,269 | 1,795,024 |
LIABILITIES | ||
Note payable | 3,463,530 | |
Accounts payable and accrued expenses | 185,562 | 57,240 |
Due to related parties | 19,107 | |
Subscriptions for common stock | 336,196 | 320,000 |
Tenants' security deposits | 52,208 | |
Total liabilities | 4,037,496 | 396,347 |
Common stock Class A | 5,974 | 1,608 |
Common stock Class T | 115 | |
Additional paid in capital | 5,453,858 | 1,452,653 |
Accumulated distributions and net loss | (73,174) | (56,584) |
Total stockholders' equity | 5,386,773 | 1,397,677 |
Total liabilities and total stockholders' equity | $ 9,425,269 | $ 1,795,024 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Revenues | |
Rental revenues | $ 110,186 |
Tenant reimbursements and other revenues | 64,919 |
Total revenues | 175,105 |
Expenses | |
Property operating expenses | 24,701 |
Asset management and acquisition fees | 10,575 |
Real estate taxes and insurance | 31,292 |
Depreciation and amortization | 20,016 |
General and administrative | 21,529 |
Interest expense | 29,281 |
Total expenses | 137,394 |
equity in earnings of unconsolidated joint venture | 8,399 |
less equity in earnings of former joint venturer | (5,400) |
Loss on remeasurement | 2,194 |
Net loss | $ 38,516 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Cash flows from operating activities: | |
Net loss | $ 38,516 |
Adjustments to reconcile net loss to cash provided by (used in) operating activities: | |
Depreciation and amortization expense | 20,016 |
Deferred loan and leasing commission costs amortization | 5,589 |
Elimination of effect in unconsolidated JV | 15,020 |
Loss on remeasurement | 2,194 |
(Increase) decrease accrued rent and accounts receivable | (14,823) |
(Increase) decrease prepaid expenses and other assets | (20,402) |
Increase (decrease) accounts payable and accrued expenses | 128,552 |
Increase (decrease) on due to related parties | (36,792) |
Net cash provided by (used in) operating activities | 137,871 |
Cash flows from investing activities: | |
Investment in formerly unconsolidated joint venture | (2,425,000) |
Net cash provide from (used in) investing activities | (2,425,000) |
Cash flows from financing activities: | |
Dividend distributions paid in cash | (28,158) |
Payment of selling commissions | (406,115) |
Proceeds from insurance premium finance note | 4,411,801 |
Net cash provided by (used in) financing activities | 3,977,528 |
Net change in cash | 1,690,399 |
Cash and cash equivalents, beginning of period | 97,810 |
Cash and cash equivalents, end of period | $ 1,788,209 |
Organization and Business
Organization and Business | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Organization and Business | Organization and Business Hartman vREIT XXI, Inc. (the Company) was formed on September 3, 2015 as a Maryland corporation and intends to qualify as a real estate investment trust (REIT). The Company expects to use the proceeds from its initial public offering to invest in a portfolio of commercial real estate properties that offer a blend of current and potential income based on in place occupancy plus relatively significant potential for growth in income and value from re-tenanting, repositioning or redevelopment. As discussed in Note 8, the Company was initially capitalized by the sale of 22,100 shares of common stock, at an issue price of $9.05 per share, to Hartman Advisors, LLC, an affiliate of the Companys Sponsor (as defined below) on September 30, 2015. The Companys fiscal year end is December 31. Effective June 24, 2016, the Company commenced its initial public offering of up to a maximum of $250,000,000 in shares of its common stock to the public in its primary offering at $10.00 per share, with discounts available to certain purchasers, and up to $19,000,000 in shares of its common stock to its stockholders pursuant to its distribution reinvestment plan (the DRP) at $9.50 per share. On February 6, 2017, the Companys amended registration statement on Form S-11, providing for its public offering of up to $269,000,000 in shares of Class A common stock and Class T common stock, was declared effective by the SEC and the Company commenced offering shares of our Class A and Class T common stock. In its initial public offering, the Company is offering to the public up to $250,000,000 in any combination of shares of Class A and Class T common stock and up to $19,000,000 in shares of Class A and Class T common stock to stockholders pursuant to its distribution reinvestment plan. Class A common stock is being offered to the public at an initial price of $10.00 per share and to stockholders at an initial price of $9.50 per share for Class A common stock purchased pursuant to the distribution reinvestment plan. Class T common stock is being offered to the public at an initial price of $9.60 per share and to stockholders at an initial price of $9.12 per share for Class T common stock purchased pursuant to the distribution reinvestment plan. The Companys board of directors may, in its sole discretion and from time to time, change the price at which the Company offers shares to the public in the primary offering or pursuant to its distribution reinvestment plan to reflect changes in estimated value per share and other factors that the board of directors deems relevant. Pursuant to the terms of the Companys initial public offering (the Offering), subscription proceeds were held in an escrow account until the Company raised the minimum offering amount of $1,000,000. On December 1, 2016, the Company raised the minimum offering amount and the subscription proceeds held in escrow as of that date were released to the Company. The Companys advisor is Hartman XXI Advisors, LLC (the Advisor), a Texas limited liability company and wholly owned subsidiary of Hartman Advisors, LLC. Hartman Income REIT Management, Inc., an affiliate of the Advisor, is the Companys sponsor (Sponsor). Subject to certain restrictions and limitations, the Advisor is responsible for managing the Companys affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company. Substantially all the Companys business will be conducted through Hartman vREIT XXI Operating Partnership, L.P., a Texas limited partnership (the OP). The Company is the sole general partner of the OP. The initial limited partners of the OP are Hartman vREIT XXI Holdings LLC, a wholly owned subsidiary of the Company (XXI Holdings), and Hartman vREIT XXI SLP LLC (SLP LLC), a wholly owned subsidiary of Hartman Advisors, LLC. SLP LLC has invested $1,000 in the OP in exchange for a separate class of limited partnership interests (the Special Limited Partnership Interests). As the Company accepts subscriptions for shares, it will transfer substantially all the net proceeds of the Offering to the OP as a capital contribution. The partnership agreement provides that the OP will be operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the OP will not be classified as a publicly traded partnership for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), which classification could result in the OP being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the OP in acquiring and operating real properties, the OP will pay all the Companys administrative costs and expenses and such expenses will be treated as expenses of the OP. As of March 31, 2017, the Company had received and accepted investors subscriptions for and issued 575,360 Class A shares and 11,458 Class T shares of its common stock pursuant to the Offering, resulting in gross offering proceeds of $5,677,001. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
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, 2016 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of March 31, 2017 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 March 31, 2017, and the results of consolidated operations for the three months ended March 31, 2017 and 2016, the consolidated statements of equity for the three months ended March 31, 2017 and the consolidated statements of cash flows for the three months ended March 31, 2017 and 2016. The results of the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The consolidated financial statements herein are condensed and should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2016. The Companys consolidated financial statements include the Companys accounts and the accounts of the OP and XXI Holdings, the subsidiaries over which the Company has control. All intercompany balances and transactions are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents as of March 31, 2017 and December 31, 2016 consisted of demand deposits at commercial banks. Financial Instruments The accompanying consolidated balance sheets include the following financial instrument: cash and cash equivalents and accounts payable and accrued expenses. The Company considers the carrying value to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. Revenue Recognition The Companys leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. Accrued rents are included in accrued rent and accounts receivable, net. In accordance with Accounting Standards Codification (ASC) 605-10-S99, Revenue Recognition, the Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Cost recoveries from tenants are included in tenant reimbursement and other revenues in the period the related costs are incurred. Investment in Unconsolidated Joint Venture The Companys investment in unconsolidated joint venture was accounted for under the equity method. Effective February 8, 2017, the Company owns all of the previously unconsolidated joint venture. Real Estate Allocation of Purchase Price of Acquired Assets Upon acquisition, the purchase price of properties is allocated to the tangible assets acquired, consisting of land, buildings and machinery and equipment, any assumed debt, identified intangible assets and asset retirement obligations, if any, based on their fair values. Acquisition costs, including acquisition fees paid to our advisor, are capitalized as part of the purchase price. Initial valuations are subject to change during the measurement period, but the measurement period ends as soon as the information is available. The measurement period shall not exceed one year from the acquisition date. Land fair values are derived from appraisals and building fair values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The fair value of machinery and equipment is based on their fair value using replacement costs less depreciation. Any difference between the fair value of the property acquired and the purchase price of the property is recorded as goodwill or gain on acquisition of the property. The Company determines the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that the Company believes it could obtain at the date of acquisition. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense. In allocating the purchase price of each of the Companys properties, the Company makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. The Company uses Level III inputs to value acquired properties. Many of these estimates are obtained from independent third party appraisals. However, the Company is responsible for the source and use of these estimates. These estimates require judgment and are subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of the Companys properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in the Companys consolidated financial statements. These variances could be material to the Companys results of operations and financial condition. Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years calculated on terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of March 31, 2017. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the propertys 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 Companys estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. There is no allowance for doubtful accounts as of March 31, 2017. Deferred Leasing Commission Costs Leasing commissions are amortized using the straight-line method over the term of the related lease agreements. Organization and Offering Costs Prior to achieving the minimum offering amount of $1,000,000, organization and offering costs of the Company were incurred by Advisor on behalf of the Company. Such costs include legal, accounting, printing and other offering expenses, including marketing, salaries and direct expenses of the Advisors employees and employees of the Advisors affiliates and others. Under the terms of the advisory agreement between the Company and the Advisor, upon the satisfaction of the minimum offering amount and the release to the Company of all subscription proceeds held in escrow, the Company would be obligated to reimburse the Advisor for organization and offering costs incurred by Advisor in connection with the Offering. Effective December 31, 2016, the advisory agreement between the Company and the Advisor was amended to provide that the liability of the Company to the Advisor for reimbursement of offering and organization costs of the Company incurred by the Advisor prior to completion of the minimum offering, shall not be reimbursable to the Advisor until the Companys receipt of gross offering proceeds in its initial public offering is $10,000,000. The Advisor has incurred organization and offering costs of $ 1,484 and $782,130 for the quarter ended March 31, 2017 and for the period from September 3, 2015 (inception) to December 31, 2016 , respectively. The Advisor will not be reimbursed for organization and offering costs to the extent that such reimbursement would cause the total organizational and offering costs incurred by the Company (including selling commissions, dealer manager fees and all other underwriting compensation) to exceed 15% of the aggregate gross proceeds from the sale of the shares of common stock sold in the Offering. Any such reimbursement will not exceed the actual costs and expenses incurred by Advisor. When recorded by the Company, organization costs will be expensed as incurred, and offering costs, which include selling commissions, dealer manager fees and all other underwriting compensation, will be deferred and charged to stockholders equity as such amounts are reimbursed or paid by the Advisor, the dealer manager or their affiliates from the gross proceeds of the Offering. Stock-Based Compensation The Company follows ASC 718, Compensation-Stock Compensation (ASC 718) with regard to issuance of stock in payment of services. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. The compensation cost is measured based on the fair value of the equity or liability instruments issued. Advertising The Company expenses advertising costs as incurred and such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Advertising costs totaled $3,420 and $0 for the three months ended March 31, 2017 and 2016, respectively. Income Taxes The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing in the taxable year ending December 31, 2017. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, so long as it distributes at least 90 percent of its REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP.) REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. Prior to qualifying to be taxed as a REIT, the Company is subject to normal federal and state corporation income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company records a valuation allowance for net deferred tax assets that are not expected to be realized. For the three months ended March 31, 2017 and 2016, the Company had net income of $38,516 and $0, respectively. The Company does not anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. Only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Companys tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions as of March 31, 2017 and December 31, 2016, respectively. Loss Per Share The computations of basic and diluted loss per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Companys potentially dilutive securities include special limited partnership interests that are convertible into the Companys common stock. For the three months ended March 31, 2017 and 2016, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net loss per share for the three months ended March 31, 2017 and for the year ended December 31, 2016 because no shares are issuable and inclusion of such potentially dilutive securities would have been anti-dilutive. Concentration of Risk The Company maintains cash accounts in one U.S. financial institution. The terms of these deposits are on demand to minimize risk. The balances of these accounts may exceed the federally insured limits. No losses have been incurred in connection with these deposits. Major tenants are defined as those tenants which individually comprise more than 10% of the Companys total rental revenues. Four individual tenants of the Village Pointe property each represent more than 10% of total rental revenues for three months ended March 31, 2017. Tenant Name Annualized Rental Revenue Percentage of Total Annualized Rental Revenue Initial Lease Date Lease Expiration Year Mattress Firm $ 119,915 17.9% 10/2013 2018 SA Bike World 109,918 16.4% 11/2016 2026 Top Brass, Inc. 93,366 13.9% 11/2015 2021 ABDEP, LP 81,072 12.1% 1/2015 2020 Total $ 404,271 60.3% Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. We have begun to evaluate each of our revenue streams under the new model. Based on preliminary assessments, we do not expect the adoption of ASU No. 2014-09 to have a material effect on our consolidated financial position or our consolidated results of operations. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities, which enhances the reporting requirements surrounding the measurement of financial instruments and requires equity securities to be measured at fair value with changes in the fair value recognized through net income for the period. ASU No. 2016-01 is effective for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-01 to have a material effect on our consolidated financial position or our consolidated results of operations. In February 2016, the FASB issued ASU No. 2016-02, Leases, which changes lessee accounting to reflect the financial liability and right-of-use asset that are inherent to leasing an asset on the balance sheet. ASU No. 2016-02 is effective for our fiscal year commencing on January 1, 2019, but early adoption is permitted. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-02 to have a material effect on our consolidated financial position or our consolidated results of operations. In October 2016, the FASB issued ASU No. 2016-17, Interest Held Through Related Parties That Are Under Common Control, which amends the accounting guidance when determining the treatment of certain VIEs 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. ASU No. 2016-17 is effective for our fiscal year commencing on January 1, 2017. In November 2016, the FASB issued ASU No. 2016-18, Classification of Restricted Cash, which addresses the Statement of Cash Flow classification and presentation of restricted cash transactions. ASU No. 2016-18 is effective for our fiscal year commencing on January 1, 2018. The effect of this amendment is to be applied retrospectively and early adoption is permitted. We expect to adopt ASU No. 2016-18 for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-18 to have a material effect on our consolidated financial position or our consolidated results of operations. In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition of assets or a business. ASU No. 2017-01 is effective for fiscal years commencing on January 1, 2018. The effect of this guidance is to be applied prospectively and early adoption is permitted. We have elected early adoption of ASU No. 2017-01 effective with our fiscal year commencing January 1, 2016. The effect of adoption of this ASU in the accompanying consolidated financial statements, is that the acquisition fee payable to advisor in the amount $33,750 which would have been expensed if the acquisition of our joint venture investment were considered an acquisition of a business, has been capitalized and added to the unconsolidated joint venture investment which will be treated as an acquisition of an asset as of December 31, 2016. |
Real Estate
Real Estate | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Real Estate | Real Estate As of January 19, 2017, the Company owed more than 50% of Hartman Village Pointe and as of that date, Hartman Village Pointe is included in these consolidated financial statements. On December 1, 2016, the Company acquired an additional 33.11% membership interest in Hartman Village Pointe from Hartman XX LP in exchange for $1,250,000 in cash. As of December 31, 2016, the Companys total equity investment in Hartman Village Pointe was $1,350,000, representing an approximate 35.76% membership interest. On January 19, 2017 the Company acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash, on January 25, 2017 the Company acquired an additional 5.30% membership interest in Hartman Village Pointe from Hartman XX LP for $200,000 in cash, on February 1, 2017 the Company acquired an additional 21.19% membership interest in Hartman Village Pointe from Hartman XX LP for $800,000 in cash, and finally on February 8, 2017 the Company acquired an additional 16.56% membership interest in Hartman Village Pointe from Hartman XX LP for $625,000 in cash. As of January 19, 2017, the Company owed more than 50% of Hartman Village Pointe and as of that date, Hartman Village Pointe is included in these consolidated financial statements. The Company re-measured its interest, with a carrying value of $3,764,024. The acquisition date fair value of the previous equity interest in the joint venture was $3,761,830. Therefore, we recognized a loss of $2,194 as a result of revaluing our prior equity interest held before the acquisition. The loss is reflected as loss on re-measurement in the consolidated statements of operations. The following table summarizes the fair value of the assets acquired and the liabilities assumed based upon the Companys purchase price allocations of the Companys 2016 property acquisitions as of the respective acquisition dates, in thousands: Assets acquired: Real estate assets $ 7,050,000 Accounts receivable and other assets 230,130 Liabilities assumed: Note payable (3,459,805) Accounts payable and accrued expenses (6,287) Security deposits (52,208) Total liabilities assumed (3,518,300) Fair value of net assets acquired $ 3,761,830 The Companys real estate assets consisted of the following: March 31, 2017 December 31, 2016 Land $ 1,762,500 $ - Buildings and improvements 5,467,251 - 7,229,751 - Less accumulated depreciation and amortization 25,020 - Total real estate assets $ 7,204,731 $ - Depreciation expense for the three months ended March 31, 2017 and 2016 was $25,020 and $0, respectively. Acquisition fees paid to Advisor were $0 and $0 for the three months ended March 31, 2017 and 2016, respectively. Asset management fees paid to Advisor were $13,219 and $0 for the three months ended March 31, 2017 and 2016, respectively. Asset management and acquisition fees are captioned as such in the accompanying consolidated statements of operations for the three months ended March 31, 2017 and 2016, respectively. |
Accrued Rent and Accounts Recei
Accrued Rent and Accounts Receivable, Net | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Accrued Rent and Accounts Receivable, Net | Accrued Rent and Accounts Receivable, net Accrued rent and accounts receivable, net, consisted of the following: March 31, 2017 December 31, 2016 Tenant receivables $ 8,094 - Accrued rent 6,729 - Allowance for uncollectible accounts - - Accrued rents and accounts receivable, net $ 14,823 - |
Note Payable
Note Payable | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Note Payable | Note Payable The Companys wholly owned subsidiary, Hartman Village Pointe, LLC, is a party to a $3,525,000, three-year mortgage loan agreement with a bank. The mortgage loan is secured by the Village Pointe property. Unamortized deferred loan costs at the time of the acquisition of Hartman Village Pointe, LLC were $67,058. The interest rate is one-month LIBOR plus 2.75%. The interest rate as at March 31, 2017 was 3.489%. Property/Facility Payment (1) Maturity Date Rate March 31, 2017 December 31, 2016 Village Pointe P&I December 15, 2019 3.489% $ 3,525,000 19,094 $ - Less unamortized deferred loan costs ed loan costs (61,470) $ 3,463,530 $ - Interest expense incurred for the three months ended March 31, 2017 and 2016 was $36,613 and $0, respectively, include $5,588 of deferred loan cost amortization for the three months ended March 31, 2017. Interest expense of $6,142 and $0 was payable as of March 31, 2017 and December 31, 2016, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. |
Related Party Arrangements
Related Party Arrangements | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Related Party Arrangements | Related Party Arrangements The Advisor is a wholly owned subsidiary of Hartman Advisors LLC, a Texas limited liability company owned 70% by Allen R. Hartman individually and 30% by the Property Manager. The Property Manager is a wholly owned subsidiary of Hartman Income REIT Management, LLC, which is wholly owned by Hartman Income REIT, Inc. and Subsidiaries of which approximately 16% of the voting stock is owned by Allen R. Hartman who is the Chief Executive Officer and Chairman of the Board of Directors. The Advisor and certain affiliates of the Advisor will receive fees and compensation in connection with the Offering, and the acquisition, management and sale of the Companys real estate investments. In addition, in exchange for $1,000, the OP has issued the Advisor a separate, special limited partnership interest, in the form of Special Limited Partnership Interests. See Note 7 (Special Limited Partnership Interest) below. The Advisor will receive reimbursement for organizational and offering expenses incurred on the Companys behalf, but only to the extent that such reimbursements do not exceed actual expenses incurred by the Advisor and would not cause the cumulative selling commission, the dealer manager fee and other organization and offering expenses borne by the Company to exceed 15.0% of gross offering proceeds from the sale of shares in the Offering. The Advisor, or its affiliates, will receive an acquisition fee equal to 2.5% of the cost of each investment the Company acquires, which includes the amount actually paid or allocated to fund the purchase, development, construction or improvement of each investment, including acquisition expenses and any debt attributable to each investment. Acquisition fees of $33,750 were earned by the Advisor for the year ended December 31, 2016 as a result of the interests acquired in Hartman Village Pointe. The Advisor, or its affiliates, will receive a debt financing fee equal to 1.0% of the amount available under any loan or line of credit originated or assumed, directly or indirectly, in connection with the acquisition, development, construction, improvement of properties or other permitted investments, which will be in addition to the acquisition fee paid to the Advisor. No debt financing fees were earned by Advisor for the three months ended March 31, 2017 and for the period from September 3, 2015 (inception) to December 31, 2016. The Company will pay Hartman Income REIT Management, Inc. (HIRM), an affiliate of the Advisor, property management fees equal to (i) 5% of the effective gross revenues of the managed properties for the management of retail centers, warehouse, industrial and flex properties and (ii) 3% or 4% of the effective gross revenues for office buildings, as applicable based upon the square footage and gross property revenues of the office buildings. The Company also expects to pay HIRM leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services in the same geographic location of the applicable property, provided that such fees will only be paid if a majority of the Companys board of directors, including a majority of its independent directors, determines that such fees are fair and reasonable in relation to the services being performed. HIRM may subcontract the performance of its property management and leasing duties to third parties and HIRM will pay a portion of its property management fee to the third parties with whom it subcontracts for these services. The Company will reimburse the costs and expenses incurred by HIRM on the Companys behalf, including the wages and salaries and other employee-related expenses of all employees of HIRM or its subcontractors who are engaged in the operation, management, maintenance or access control of our properties, including taxes, insurance and benefits relating to such employees, and travel and other out-of-pocket expenses that are directly related to the management of specific properties. Other charges, including fees and expenses of third-party professionals and consultants, will be reimbursed, subject to the limitations on fees and reimbursements contained in the Charter. If HIRM provides construction management services related to the improvement or finishing of tenant space in the Companys real estate properties, the Company will pay HIRM a construction management fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, that the Company will only pay a construction management fee if a majority of the Companys board of directors, including a majority of its independent directors, determines that such construction management fee is fair and reasonable and on terms and conditions not less favorable than those available from unaffiliated third parties. The Company will pay the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the higher of (i) the cost or (ii) the value of all real estate investments the Company acquires. If Advisor or affiliate provides a substantial amount of services, as determined by the Companys independent directors, in connection with the sale of one or more assets, the Company will pay the Advisor a disposition fee equal to (1) in the case of the sale of real property, the lesser of: (A) one-half of the aggregate brokerage commission paid (including the disposition fee) or, if none is paid, the amount that customarily would be paid, or (B) 3% of the sales price of each property sold, and (2) in the case of the sale of any asset other than real property, 3% of the sales price of such asset. The Company will reimburse the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that, commencing four fiscal quarters after the Companys acquisition of its first asset, the Company will not reimburse the Advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (1) 2% of the Companys average invested assets (as defined in the Charter), or (2) 25% of the Companys net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Companys assets for that period. Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the Companys independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the three months ended March 31, 2017, the Company incurred property management fees and reimbursable costs of $6,910 payable to the Property Manager and asset management fees of $13,219 payable to the Advisor. As of March 31, 2017, the Company had $137,022 due from the Advisor and $67,965 due from Hartman Short Term Income Securities, XX, Inc. and $5,314 due to other Hartman affiliates. Mr. Jack Cardwell, an independent director, and his affiliates, have invested $1,250,000 for the purchase of 140,263 Class A common shares in the Company. As of March 31, 2017, he owned approximately 24% of the companys outstanding stock. As he owns more than 9.8% of the companys outstanding common shares, Mr. Cardwell recused himself from the vote and the other directors voted to accept his subscription. |
Loss Per Share
Loss Per Share | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Loss Per Share | Loss Per Share Basic loss per share is computed using net loss 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 March 31, 2017 2016 Numerator: Net income attributable to common stockholders $ 38,516 - Denominator: Basic and diluted weighted average shares outstanding 417,002 - Basic and diluted loss per common share: Net Income attributable to common stockholders $ (0.09) - |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Stockholders' Equity | Stockholders Equity Under the Companys Articles of Amendment and Restatement (as amended and restated, the Charter), the Company has the authority to issue 900,000,000 shares of common stock, $0.01 per share par value, classified and designated as 850,000,000 shares of Class A common stock, 50,000,000 shares of Class T common stock, and 50,000,000 shares of preferred stock with a par value of $0.01 per share. On September 30, 2015, the Company sold 22,100 shares of common stock to Hartman Advisors, LLC at a purchase price of $9.05 per share for an aggregate purchase price of $200,005, which was paid in cash. The Companys board of directors is authorized to amend the Charter, without the approval of the Companys stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue. Common Stock Shares of Class A and Class T common stock entitle the holders to one vote per share on all matters which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Companys board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. Neither Class A or Class T common stock have any preferences or preemptive conversion or exchange rights. Preferred Stock The board of directors, with the approval of a majority of the entire board of directors and without any action by the stockholders, may amend the charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series. If the Company were to create and issue preferred stock or convertible stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock or convertible stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities and the removal of incumbent management. Stock-Based Compensation The Company awards vested restricted common shares to non-employee directors as compensation in part for their service as members of the board of directors of the Company. These shares are fully vested when granted. These shares may not be sold while an independent director is serving on the board of directors. For the quarter ended March 31, 2017 and for the period from September 3, 2015 (inception) to December 31, 2016, respectively, the Company granted 0 and 2,500 shares of restricted common stock to independent directors as compensation for services. The Company recognized $0 and $25,000 as stock-based compensation expense for the quarter ended March 31, 2017 and for the period from September 3, 2015 (inception) to December 31, 2016, respectively, based upon the offering price of $10.00 per common share. These amounts are included in directors compensation expense in the accompanying consolidated statements of operations. Distributions On December 1, 2016, the Companys board of directors authorized and declared the payment of cash and stock distributions to the Companys stockholders (collectively, the Distribution). The Distribution will (i) accrue daily to the Companys stockholders of record as of the close of business on each day commencing on December 1, 2016, (ii) be payable in cumulative amounts on or before the 20th day of each calendar month with respect to the prior month, (iii) with respect to the cash distribution, be calculated at a rate of $0.0015068 per share of the Companys common stock per day, a rate which, if paid each day over a 365-day period, is equivalent to a 5.5% annualized cash distribution rate based on a purchase price of $10.00 per share of the Companys common stock, and (iv) with respect to the stock distribution, be calculated at a rate of 0.000547945 common shares of the Companys common stock per day, a rate which, if paid each day over a 365-day period, is equivalent to a 2.0% annualized stock distribution rate based on a purchase price of $10.00 per share of the Companys common stock. Distributions declared as of March 31, 2017 and payable in April 2017 are included accounts payable and accrued expenses in the accompanying consolidated balance sheets. Distribution with respect to the Companys Class T common shares will be declared at the same annualized distribution rate as Class A common shares. The daily cash distribution rate and the daily Class T common stock distribution rate will be based on a purchase price of $9.60 per Class T common share. The cash distribution rate for Class T common shares will be reduced by the applicable prorated amount of the shareholder servicing fee applicable to Class T common shares. The following table reflects the total distributions the Company has paid, including the total amount paid and amount paid per common share, in each indicated quarter: Distributions per Common Share Total Distributions Paid Quarter Paid 2017 1 st $ 0.1875 $70,126 2016 4 th $ 0 $ 0 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Commitments and Contingencies | Commitments and Contingencies Economic Dependency The Company is dependent on the Sponsor and the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of properties, management of the daily operations of the Companys real estate portfolio, and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other providers. Litigation The Company is subject to various claims and legal actions that arise in the ordinary course of business. Management of the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position of the Company. |
Incentive Plans
Incentive Plans | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Incentive Plans | Incentive Plans The Company has adopted a long-term incentive plan (the Incentive Award Plan) that provides for the grant of equity awards to employees, directors and consultants and those of the Companys affiliates. The Incentive Award Plan authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, officers, employees and consultants of the Company and the Companys affiliates selected by the board of directors for participation in the Incentive Award Plan. Stock options and shares of restricted common stock granted under the Incentive Award Plan will not, in the aggregate, exceed an amount equal to 5.0% of the outstanding shares of the Companys common stock on the date of grant or award of any such stock options or shares of restricted stock. Stock options may not have an exercise price that is less than the fair market value of a share of the Companys common stock on the date of grant. Shares of common stock will be authorized and reserved for issuance under the Incentive Award Plan. The Company has adopted an independent directors compensation plan (the Independent Directors Compensation Plan) pursuant to which each of the Companys independent directors will be entitled, subject to the plans conditions and restrictions, to receive an initial grant of 3,000 shares of restricted stock when the Company raises the minimum offering amount of $1,000,000 in the Offering. Each new independent director that subsequently joins the Companys board of directors will receive a grant of 3,000 shares of restricted stock upon his or her election to the Companys board of directors. The shares of restricted common stock granted to independent directors fully vest upon the completion of the annual term for which the director was elected. Subject to certain conditions, the non-vested shares of restricted stock granted pursuant to the Independent Directors Compensation Plan will become fully vested on the earlier to occur of (1) the termination of the independent directors service as a director due to his or her death or disability, or (2) a change in control of the Company. No awards have been granted under the Incentive Award Plan as of December 31, 2016. Awards under the Independent Directors Compensation Plan for the year ended December 31, 2016, the first year for which compensation award could be issued, consisted of 2,500 restricted, Class A common shares to our independent directors, valued at $10.00 per share based on the Offering price. The stock-based compensation expense is include in directors compensation in the accompanying consolidated statements of operations. |
Special Limited Partnership Int
Special Limited Partnership Interest | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Special Limited Partnership Interest | Special Limited Partnership Interest Pursuant to the limited partnership agreement for the OP, SLP LLC, the holder of the Special Limited Partnership Interest, will be entitled to receive distributions equal to 15.0% of the OPs net sales proceeds from the disposition of assets, but only after the Companys stockholders have received, in the aggregate, cumulative distributions equal to their total invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such aggregated invested capital. In addition, the holder or the Special Limited Partnership Interest is entitled to receive a payment upon the redemption of the Special Limited Partnership Interests. Pursuant to the limited partnership agreement for the OP, the Special Limited Partnership Interests will be redeemed upon: (1) the listing of the Companys common stock on a national securities exchange; (2) the occurrence of certain events that result in the termination or non-renewal of the Companys advisory agreement with the Advisor (Advisory Agreement) other than by the Company for cause (as defined in the Advisory Agreement); or (3) the termination of the Advisory Agreement by the Company for cause. In the event of the listing of the Companys shares of common stock or a termination of the Advisory Agreement other than by the Company for cause, the Special Limited Partnership Interests will be redeemed for an aggregate amount equal to the amount that the holder of the Special Limited Partnership Interests would have been entitled to receive, as described above, if the OP had disposed of all of its assets at their fair market value and all liabilities of the OP had been satisfied in full according to their terms as of the date of the event triggering the redemption. Payment of the redemption price to the holder of the Special Limited Partnership Interests will be paid, at the holders discretion, in the form of (i) limited partnership interests in the OP, (ii) shares of the Companys common stock, or (iii) a non-interest bearing promissory note. If the event triggering the redemption is a listing of the Companys shares on a national securities exchange only, the fair market value of the assets of the OP will be calculated taking into account the average share price of the Companys shares for a specified period. If the event triggering the redemption is an underwritten public offering of the Companys shares, the fair market value will take into account the valuation of the shares as determined by the initial public offering price in such offering. If the triggering event of the redemption is the termination or non-renewal of the Advisory Agreement other than by the Company for cause for any other reason, the fair market value of the assets of the OP will be calculated based on an appraisal or valuation of the Companys assets. In the event of the termination or non-renewal of the Advisory Agreement by the Company for cause, all of the Special Limited Partnership Interests will be redeemed by the OP for the aggregate price of $1. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2017 | |
Notes | |
Subsequent Events | Subsequent Events Joint Venture Investment On April 11, 2017, Hartman vREIT XXI, Inc. (the Company) entered into a membership interest purchase agreement with Hartman XX Limited Partnership (Hartman XX LP), the operating partnership of Hartman Short Term Income Properties XX, Inc., an affiliate of the Company. Pursuant to the terms of a membership interest purchase agreement between the Company and Hartman XX LP, the Company may acquire up to $10,000,000 of the membership interest of Hartman XX LP in Hartman Three Forest Plaza, LLC (Three Forest Plaza LLC). On April 11, 2017, the Company acquired 160,000 membership units for $1,600,000 representing a 4.48745% interest in Three Forest Plaza LLC. The Company paid for the membership units acquired with proceeds from the Companys initial public offering. |
Summary of Significant Accoun17
Summary of Significant Accounting Policies: Use of Estimates (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses |
Summary of Significant Accoun18
Summary of Significant Accounting Policies: Cash and Cash Equivalents (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Cash and Cash Equivalents | Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents as of March 31, 2017 and December 31, 2016 consisted |
Summary of Significant Accoun19
Summary of Significant Accounting Policies: Financial Instruments (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Financial Instruments | Financial Instruments The accompanying consolidated balance sheets include the following financial instrument: cash and cash equivalents and accounts payable and accrued expenses. The Company considers the carrying value to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. |
Summary of Significant Accoun20
Summary of Significant Accounting Policies: Revenue Recognition (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Revenue Recognition | Revenue Recognition The Companys leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. Accrued rents are included in accrued rent and accounts receivable, net. In accordance with Accounting Standards Codification (ASC) 605-10-S99, Revenue Recognition, the Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Cost recoveries from tenants are included in tenant reimbursement and other revenues in the period the related costs are incurred. |
Summary of Significant Accoun21
Summary of Significant Accounting Policies: Real Estate (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Real Estate | Real Estate Allocation of Purchase Price of Acquired Assets Upon acquisition, the purchase price of properties is allocated to the tangible assets acquired, consisting of land, buildings and machinery and equipment, any assumed debt, identified intangible assets and asset retirement obligations, if any, based on their fair values. Acquisition costs, including acquisition fees paid to our advisor, are capitalized as part of the purchase price. Initial valuations are subject to change during the measurement period, but the measurement period ends as soon as the information is available. The measurement period shall not exceed one year from the acquisition date. Land fair values are derived from appraisals and building fair values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The fair value of machinery and equipment is based on their fair value using replacement costs less depreciation. Any difference between the fair value of the property acquired and the purchase price of the property is recorded as goodwill or gain on acquisition of the property. The Company determines the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that the Company believes it could obtain at the date of acquisition. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense. In allocating the purchase price of each of the Companys properties, the Company makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. The Company uses Level III inputs to value acquired properties. Many of these estimates are obtained from independent third party appraisals. However, the Company is responsible for the source and use of these estimates. These estimates require judgment and are subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of the Companys properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in the Companys consolidated financial statements. These variances could be material to the Companys results of operations and financial condition. Depreciation and amortization Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years calculated on terms of all of the leases in-place when acquired. Impairment The Company reviews its real estate assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The Company determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of March 31, 2017. Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the propertys 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 Companys estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Accrued Rent and Accounts Receivable Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. There is no allowance for doubtful accounts as of March 31, 2017. Deferred Leasing Commission Costs Leasing commissions are amortized using the straight-line method over the term of the related lease agreements. |
Summary of Significant Accoun22
Summary of Significant Accounting Policies: Organization and Offering Costs (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Organization and Offering Costs | Organization and Offering Costs Prior to achieving the minimum offering amount of $1,000,000, organization and offering costs of the Company were incurred by Advisor on behalf of the Company. Such costs include legal, accounting, printing and other offering expenses, including marketing, salaries and direct expenses of the Advisors employees and employees of the Advisors affiliates and others. Under the terms of the advisory agreement between the Company and the Advisor, upon the satisfaction of the minimum offering amount and the release to the Company of all subscription proceeds held in escrow, the Company would be obligated to reimburse the Advisor for organization and offering costs incurred by Advisor in connection with the Offering. Effective December 31, 2016, the advisory agreement between the Company and the Advisor was amended to provide that the liability of the Company to the Advisor for reimbursement of offering and organization costs of the Company incurred by the Advisor prior to completion of the minimum offering, shall not be reimbursable to the Advisor until the Companys receipt of gross offering proceeds in its initial public offering is $10,000,000. The Advisor has incurred organization and offering costs of $ 1,484 and $782,130 for the quarter ended March 31, 2017 and for the period from September 3, 2015 (inception) to December 31, 2016 , respectively. The Advisor will not be reimbursed for organization and offering costs to the extent that such reimbursement would cause the total organizational and offering costs incurred by the Company (including selling commissions, dealer manager fees and all other underwriting compensation) to exceed 15% of the aggregate gross proceeds from the sale of the shares of common stock sold in the Offering. Any such reimbursement will not exceed the actual costs and expenses incurred by Advisor. When recorded by the Company, organization costs will be expensed as incurred, and offering costs, which include selling commissions, dealer manager fees and all other underwriting compensation, will be deferred and charged to stockholders equity as such amounts are reimbursed or paid by the Advisor, the dealer manager or their affiliates from the gross proceeds of the Offering. |
Summary of Significant Accoun23
Summary of Significant Accounting Policies: Advertising (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Advertising | Advertising The Company expenses advertising costs as incurred and such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Advertising costs totaled $3,420 and $0 for the three months ended March 31, 2017 and 2016, respectively. |
Summary of Significant Accoun24
Summary of Significant Accounting Policies: Income Taxes (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Income Taxes | Income Taxes The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing in the taxable year ending December 31, 2017. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, so long as it distributes at least 90 percent of its REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP.) REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. Prior to qualifying to be taxed as a REIT, the Company is subject to normal federal and state corporation income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company records a valuation allowance for net deferred tax assets that are not expected to be realized. For the three months ended March 31, 2017 and 2016, the Company had net income of $38,516 and $0, respectively. The Company does not anticipate forming any taxable REIT subsidiaries or otherwise generating future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance in that no future taxable income is expected. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements. Only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Companys tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions as of March 31, 2017 and December 31, 2016, respectively. |
Summary of Significant Accoun25
Summary of Significant Accounting Policies: Recent Accounting Pronouncements (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Policies | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. We have begun to evaluate each of our revenue streams under the new model. Based on preliminary assessments, we do not expect the adoption of ASU No. 2014-09 to have a material effect on our consolidated financial position or our consolidated results of operations. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities, which enhances the reporting requirements surrounding the measurement of financial instruments and requires equity securities to be measured at fair value with changes in the fair value recognized through net income for the period. ASU No. 2016-01 is effective for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-01 to have a material effect on our consolidated financial position or our consolidated results of operations. In February 2016, the FASB issued ASU No. 2016-02, Leases, which changes lessee accounting to reflect the financial liability and right-of-use asset that are inherent to leasing an asset on the balance sheet. ASU No. 2016-02 is effective for our fiscal year commencing on January 1, 2019, but early adoption is permitted. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-02 to have a material effect on our consolidated financial position or our consolidated results of operations. In October 2016, the FASB issued ASU No. 2016-17, Interest Held Through Related Parties That Are Under Common Control, which amends the accounting guidance when determining the treatment of certain VIEs 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. ASU No. 2016-17 is effective for our fiscal year commencing on January 1, 2017. In November 2016, the FASB issued ASU No. 2016-18, Classification of Restricted Cash, which addresses the Statement of Cash Flow classification and presentation of restricted cash transactions. ASU No. 2016-18 is effective for our fiscal year commencing on January 1, 2018. The effect of this amendment is to be applied retrospectively and early adoption is permitted. We expect to adopt ASU No. 2016-18 for our fiscal year commencing on January 1, 2018. Based on preliminary assessments, we do not expect the adoption of ASU No. 2016-18 to have a material effect on our consolidated financial position or our consolidated results of operations. In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition of assets or a business. ASU No. 2017-01 is effective for fiscal years commencing on January 1, 2018. The effect of this guidance is to be applied prospectively and early adoption is permitted. We have elected early adoption of ASU No. 2017-01 effective with our fiscal year commencing January 1, 2016. The effect of adoption of this ASU in the accompanying consolidated financial statements, is that the acquisition fee payable to advisor in the amount $33,750 which would have been expensed if the acquisition of our joint venture investment were considered an acquisition of a business, has been capitalized and added to the unconsolidated joint venture investment which will be treated as an acquisition of an asset as of December 31, 2016. |
Summary of Significant Accoun26
Summary of Significant Accounting Policies: Major tenants table (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Major tenants table | Tenant Name Annualized Rental Revenue Percentage of Total Annualized Rental Revenue Initial Lease Date Lease Expiration Year Mattress Firm $ 119,915 17.9% 10/2013 2018 SA Bike World 109,918 16.4% 11/2016 2026 Top Brass, Inc. 93,366 13.9% 11/2015 2021 ABDEP, LP 81,072 12.1% 1/2015 2020 Total $ 404,271 60.3% |
Real Estate_ Schedule of Real E
Real Estate: Schedule of Real Estate Properties (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Schedule of Real Estate Properties | March 31, 2017 December 31, 2016 Land $ 1,762,500 $ - Buildings and improvements 5,467,251 - 7,229,751 - Less accumulated depreciation and amortization 25,020 - Total real estate assets $ 7,204,731 $ - |
Accrued Rent and Accounts Rec28
Accrued Rent and Accounts Receivable, Net: Accrued rent and accounts receivable, net (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Accrued rent and accounts receivable, net | Accrued rent and accounts receivable, net, consisted of the following: March 31, 2017 December 31, 2016 Tenant receivables $ 8,094 - Accrued rent 6,729 - Allowance for uncollectible accounts - - Accrued rents and accounts receivable, net $ 14,823 - |
Note Payable_ Note Payable tabl
Note Payable: Note Payable table (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Note Payable table | Property/Facility Payment (1) Maturity Date Rate March 31, 2017 December 31, 2016 Village Pointe P&I December 15, 2019 3.489% $ 3,525,000 19,094 $ - Less unamortized deferred loan costs ed loan costs (61,470) $ 3,463,530 $ - |
Loss Per Share_ Loss Per Share
Loss Per Share: Loss Per Share table (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Loss Per Share table | Basic loss per share is computed using net loss 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 March 31, 2017 2016 Numerator: Net income attributable to common stockholders $ 38,516 - Denominator: Basic and diluted weighted average shares outstanding 417,002 - Basic and diluted loss per common share: Net Income attributable to common stockholders $ (0.09) - |
Stockholders' Equity_ Dividends
Stockholders' Equity: Dividends distribution (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Tables/Schedules | |
Dividends distribution | Distributions per Common Share Total Distributions Paid Quarter Paid 2017 1 st $ 0.1875 $70,126 2016 4 th $ 0 $ 0 |
Organization and Business (Deta
Organization and Business (Details) | Mar. 31, 2017USD ($)$ / shares |
Details | |
Initial public offering maximum | $ | $ 250,000,000 |
Share Price | $ 10 |
DRP share price | $ 9.50 |
Real Estate_ Schedule of Real33
Real Estate: Schedule of Real Estate Properties (Details) | Mar. 31, 2017USD ($) |
Details | |
Land | $ 1,762,500 |
Buildings and Improvements, Gross | $ 5,467,251 |
Real Estate (Details)
Real Estate (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Details | ||
Depreciation | $ 25,020 | $ 0 |
Asset management fees paid to Advisor | $ 13,219 | $ 0 |
Accrued Rent and Accounts Rec35
Accrued Rent and Accounts Receivable, Net: Accrued rent and accounts receivable, net (Details) | Mar. 31, 2017USD ($) |
Details | |
Tenant receivables | $ 8,094 |
Accrued rent | $ 6,729 |
Related Party Arrangements (Det
Related Party Arrangements (Details) | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Details | |
Property management fees and reimbursable costs | $ 6,910 |
Asset management fees to advisor | 13,219 |
Due from the Advisor | 137,022 |
Due from Hartman Short Term Income Securities, XX, Inc | 67,965 |
Due to other Hartman affiliates | $ 5,314 |
Stockholders' Equity_ Dividen37
Stockholders' Equity: Dividends distribution (Details) | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Details | |
Total distributionos paid | $ 70,126 |