Notes to Consolidated
Financial Statements
1.
|
Organization and Basis of Presentation and Consolidation
|
Medalist
Diversified Real Estate Investment Trust, Inc. (the “REIT”) is a Maryland corporation formed on September 28,
2015. Beginning with the taxable year ended December 31, 2017, the REIT has elected to be taxed as a real estate investment
trust for federal income tax purposes. The REIT serves as the general partner of Medalist Diversified Holdings, LP (the “Operating
Partnership”) which was formed as a Delaware limited partnership on September 29, 2015. As of December 31, 2019,
the REIT, through the Operating Partnership, owned and operated six properties, the Shops at Franklin Square, a 134,239 square
foot retail property located in Gastonia, North Carolina (the “Franklin Square Property”), the Greensboro Airport Hampton
Inn, a hotel with 125 rooms on 2.162 acres in Greensboro, North Carolina (the “Hampton Inn Property”), the Shops at
Hanover Square North (the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville,
Virginia, the Ashley Plaza Shopping Center (the “Ashley Plaza Property”), a 160,356 square foot retail property located
in Goldsboro, North Carolina, the Clemson Best Western University Inn (the “Clemson Best Western Property”), a hotel
with 148 rooms on 5.92 acres in Clemson, South Carolina and Brookfield Center, a 64,880 square foot mixed-use industrial/office
property located in Greenville, South Carolina (the “Brookfield Center Property”). As of December 31, 2019, the
Company owned 64 percent of the Hampton Inn Property as a tenant in common with a noncontrolling owner which owns the remaining
36 percent interest. The Company owns 84 percent of the Hanover Square Property as a tenant in common with a noncontrolling owner
which owns the remaining 16 percent interest.
The
use of the word “Company” refers to the REIT and its consolidated subsidiaries, except where the context otherwise
requires. The Company includes the REIT, the Operating Partnership, wholly owned limited liability corporations which own or operate
the properties, and the taxable REIT subsidiaries which operate the Hampton Inn Property and the Clemson Best Western Property.
As a REIT, certain tax laws limit the amount of “non-qualifying” income that Company can earn, including income derived
directly from the operation of hotels. As a result, the Company and, in the case of the Hampton Inn Property, the tenant in common
(“TIC”) noncontrolling owner, leases its consolidated hotel properties to taxable REIT subsidiaries (“TRS”)
for federal income tax purposes. The TRS subsidiaries are subject to income tax and are not limited as to the amount of nonqualifying
income they can generate, but they are limited in terms of their value as a percentage of the total value of the Company’s
assets. The TRS subsidiaries enter into agreements with a third party to manage the operations of the hotel. The Company prepared
the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States
of America (“GAAP”). References to the consolidated financial statements and references to individual financial statements
included herein, reference the consolidated financial statements or the respective individual financial statement. All material
balances and transactions between the consolidated entities of the Company have been eliminated.
The
Company was formed to acquire, reposition, renovate, lease and manage income-producing properties, with a primary focus on (i) commercial
properties, including flex-industrial, limited service hotels, and retail properties, and (ii) multi-family residential properties
in secondary and tertiary markets in the southeastern part of the United States, with an expected concentration in Virginia, North
Carolina, South Carolina, Georgia, Florida and Alabama. The Company may also pursue, in an opportunistic manner, other real estate-related
investments, including, among other things, equity or other ownership interests in entities that are the direct or indirect owners
of real property, indirect investments in real property, such as those that may be obtained in a joint venture. While these types
of investments are not intended to be a primary focus, the Company may make such investments in its Manager’s discretion.
The
Company is externally managed by Medalist Fund Manager, Inc. (the ‘‘Manager’’). The Manager makes
all investment decisions for the Company. The Manager and its affiliated companies specialize in acquiring, developing, owning
and managing value-added commercial real estate in the Mid-Atlantic and Southeast regions. The Manager oversees the Company’s
overall business and affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment
decisions. The Company’s stockholders are not involved in its day-to-day affairs.
2.
|
Summary of Significant Accounting Policies
|
Investment
Properties
As
of January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations
(Topic 805), which clarifies the framework for determining whether an integrated set of assets and activities meets the definition
of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is
a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business
combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted
for as asset acquisitions. As a result, the all of the Company’s acquisitions to date qualified as asset acquisitions and
the Company expects future acquisitions of operating properties to qualify as asset acquisitions. Accordingly, third-party transaction
costs associated with these acquisitions have been and will be capitalized, while internal acquisition costs will continue to be
expensed.
Accounting
Standards Codification (“ASC”) 805 mandates that “an acquiring entity shall allocate the cost of an acquired
entity to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition.” ASC 805
results in an allocation of acquisition costs to both the tangible and intangible assets associated with income producing real
estate. Tangible assets include land, buildings, site improvements, tenant improvements and furniture, fixtures and equipment,
while intangible assets include the value of in-place leases, lease origination costs (leasing commissions and tenant improvements),
legal and marketing costs and leasehold assets and liabilities (above or below market leases), among others.
The
Company uses independent, third party consultants to assist management with its ASC 805 evaluations. The Company determines fair
value based on accepted valuation methodologies including the cost, market, and income capitalization approaches. The purchase
price is allocated to the tangible and intangible assets identified in the evaluation.
The
Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of
the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments
to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized
utilizing the straight-line method over the term of the related lease. Amounts allocated to buildings are depreciated over the
estimated remaining life of the acquired building or related improvements.
Acquisition
and closing costs are capitalized as part of each tangible asset on a pro rata basis. Improvements and major repairs and maintenance
are capitalized when the repair and maintenance substantially extend the useful life, increases capacity or improves the efficiency
of the asset. All other repair and maintenance costs are expensed as incurred.
The
Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances
indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include,
but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any
impairment of investment property when the estimated undiscounted cash flows plus its residual value, is less than the carrying
value of the property. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of
the property over its estimated fair value. The Company estimates fair value using unobservable data such as projected future operating
income, estimated capitalization rates, or multiples, leasing prospects and local market information. The Company may decide to
sell properties that are held for use and the sale prices of these properties may differ from their carrying values.
The Company did not record any
impairment adjustments to its investment properties during the year ended December 31, 2019 other than the loss on
disposition of furniture, fixtures and equipment. During 2018, a tenant in the Company’s Franklin Square Property
was evicted. The Company determined that the carrying value of the tenant improvements associated with this lease that were
recorded as part of the purchase of the Franklin Square Property should be written off. As a result, the Company recorded a
loss on impairment of $50,405 for the year ended December 31, 2018.
Intangible
Assets and Liabilities, net
The
Company determines, through the ASC 805 evaluation, the above and below market lease intangibles upon acquiring a property. Intangible
assets (or liabilities) such as above or below-market leases and in-place lease value are recorded at fair value and are amortized
as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases.
The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over
the remaining life of the underlying leases. The analysis is conducted on a lease-by-lease basis.
The
Company reviews its intangible assets for impairment whenever vents or changes in circumstances indicate that the carrying value
of its intangible assets may not be recoverable, but at least annually. During the year ended December 31, 2019, the Company
did not record any impairment adjustments to its intangible assets. During the year ended December 31, 2018, a tenant in the
Company’s Franklin Square Property was evicted. The Company determined that the book value of the intangible assets associated
with this lease that were recorded as part of the purchase of the Franklin Square Property should be written off. As a result,
the Company recorded a loss on impairment of intangible assets of $141,173 for the year ended December 31, 2018.
Details
of these deferred costs, net of amortization, arising from the Company’s purchases of the Franklin Square Property, Hanover
Square Property, Ashley Plaza Property and Brookfield Center Property are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Intangible Assets
|
|
|
|
|
|
|
Leasing commissions
|
|
$
|
1,145,948
|
|
|
$
|
305,646
|
|
Legal and marketing costs
|
|
|
122,582
|
|
|
|
95,950
|
|
Above market leases
|
|
|
624,285
|
|
|
|
648,409
|
|
Net leasehold asset
|
|
|
2,565,256
|
|
|
|
1,535,829
|
|
|
|
$
|
4,458,071
|
|
|
$
|
2,585,834
|
|
|
|
|
|
|
|
|
|
|
Intangible Liabilities
|
|
|
|
|
|
|
|
|
Below market leases, net
|
|
$
|
(1,277,960
|
)
|
|
$
|
(439,726
|
)
|
Capitalized
above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized
below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases. Adjustments
to rental revenue related to the above and below market leases during the years ended December 31, 2019 and 2018, respectively,
were as follows:
|
|
For the years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Amortization of above market leases
|
|
$
|
(226,251
|
)
|
|
$
|
(214,415
|
)
|
Amortization of below market leases
|
|
|
140,481
|
|
|
|
78,045
|
|
|
|
$
|
(85,770
|
)
|
|
$
|
(136,370
|
)
|
Amortization
of lease origination costs, leases in place and legal and marketing costs represent a component of depreciation and amortization
expense. Amortization related to these intangible assets during the years ended December 31, 2019 and 2018, respectively,
were as follows:
|
|
For the years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Leasing commissions
|
|
$
|
(121,150
|
)
|
|
$
|
(82,306
|
)
|
Legal and marketing costs
|
|
|
(32,944
|
)
|
|
|
(31,660
|
)
|
Net leasehold asset
|
|
|
(585,518
|
)
|
|
|
(467,727
|
)
|
|
|
$
|
(739,612
|
)
|
|
$
|
(581,693
|
)
|
As
of December 31, 2019 and 2018, the Company’s accumulated amortization of lease origination costs, leases in place and
legal and marketing costs totaled $1,518,772 and $821,014, respectively.
Future
amortization of above and below market leases, lease origination costs, leases in place, legal and marketing costs and tenant relationships
is as follows:
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025-2039
|
|
|
Total
|
|
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing commissions
|
|
$
|
180,980
|
|
|
$
|
171,570
|
|
|
$
|
137,213
|
|
|
$
|
109,615
|
|
|
$
|
91,762
|
|
|
$
|
454,808
|
|
|
$
|
1,145,948
|
|
Legal and marketing costs
|
|
|
30,215
|
|
|
|
24,949
|
|
|
|
20,085
|
|
|
|
15,160
|
|
|
|
10,094
|
|
|
|
22,079
|
|
|
|
122,582
|
|
Above market leases
|
|
|
221,390
|
|
|
|
214,452
|
|
|
|
121,137
|
|
|
|
33,311
|
|
|
|
7,692
|
|
|
|
26,303
|
|
|
|
624,285
|
|
Net leasehold asset
|
|
|
687,399
|
|
|
|
582,861
|
|
|
|
354,284
|
|
|
|
207,919
|
|
|
|
156,036
|
|
|
|
576,757
|
|
|
|
2,565,256
|
|
|
|
$
|
1,119,984
|
|
|
$
|
993,832
|
|
|
$
|
632,719
|
|
|
$
|
366,005
|
|
|
$
|
265,584
|
|
|
$
|
1,079,947
|
|
|
$
|
4,458,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market leases, net
|
|
$
|
(219,714
|
)
|
|
$
|
(207,700
|
)
|
|
$
|
(185,252
|
)
|
|
$
|
(138,780
|
)
|
|
$
|
(96,971
|
)
|
|
$
|
(429,543
|
)
|
|
$
|
(1,277,960
|
)
|
Conditional Asset Retirement
Obligation
A
conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement depends on a future event that may or may not be with the Company’s control. Currently, the Company
does not have any conditional asset retirement obligations. However, any such obligations identified in the future would result
in the Company recording a liability if the fair value of the obligation can be reasonably estimated. Environmental studies conducted
at the time the Company acquired its properties did not reveal any material environmental liabilities, and the Company is unaware
of any subsequent environmental matters that would have created a material liability.
The
Company believes that its properties are currently in material compliance with applicable environmental, as well as non-environmental,
statutory and regulatory requirements. The Company did not record any conditional asset retirement obligation liabilities during
the years ended December 31, 2019 and 2018, respectively.
Cash and Cash Equivalents and
Restricted Cash
The
Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents.
Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts
and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash
and equivalents and its trade accounts receivable.
Restricted
cash represents (i) amounts held by the Company for tenant security deposits, (ii) escrow deposits held by lenders for
real estate tax, insurance, and operating reserves and (iii) capital reserves held by lenders for investment property capital
improvements.
The
Company places its cash and cash equivalents and any restricted cash held by the Company on deposit with financial institutions
in the United States which are insured by the Federal Deposit Insurance Company ("FDIC") up to $250,000. The Company's
credit loss in the event of failure of these financial institutions is represented by the difference between the FDIC limit and
the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on
deposit to minimize risk. As of December 31, 2019, the Company had no cash accounts with balances that exceeded the FDIC
limit. As of December 31, 2018, the Company held one cash account with a balance that exceeded the FDIC limit by $650,699.
Tenant
security deposits are restricted cash balances held by the Company to offset potential damages, unpaid rent or other unmet conditions
of its tenant leases. As of December 31, 2019 and 2018, the Company reported $101,503 and $71,022, respectively, in security
deposits held as restricted cash.
Escrow
deposits are restricted cash balances held by lenders for real estate taxes, insurance and other operating reserves. As of December 31,
2019 and 2018, the Company reported $882,265 and $719,588, respectively, in escrow deposits.
Capital
reserves are restricted cash balances held by lenders for capital improvements, leasing commissions furniture, fixtures and equipment,
and tenant improvements. As of December 31, 2019 and 2018, the Company reported $474,747 and $2,002,762, respectively, in
capital property reserves. These funds are being held in reserve, as follows:
|
|
December 31,
|
|
Property and Purpose of Reserve
|
|
2019
|
|
|
2018
|
|
Hampton Inn Property - improvements
|
|
$
|
82,693
|
|
|
$
|
1,601,809
|
|
Clemson Best Western Property - improvements
|
|
|
50,002
|
|
|
|
-
|
|
Clemson Best Western Property - furniture, fixtures and equipment
|
|
|
27,226
|
|
|
|
-
|
|
Franklin Square Property - leasing costs
|
|
|
307,438
|
|
|
|
400,953
|
|
Brookfield Center Property - maintenance reserve
|
|
|
7,388
|
|
|
|
-
|
|
Revenue
Recognition
The
Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective on January 1, 2019
(see Recent Accounting Pronouncements, below). This adoption did not have a material impact on the Company’s recognition
of revenues from either its retail, flex or hotel properties.
Retail and
Flex Center Property Revenues
The
Company recognizes minimum rents from its retail center properties (the Franklin Square, Hanover Square and Ashley Plaza properties)
and flex center property (Brookfield Center) on a straight-line basis over the terms of the respective leases which results in
an unbilled rent asset being recorded on the consolidated balance sheet. As of December 31, 2019
and 2018, the Company reported $460,888 and $259,216, respectively, in unbilled rent.
The
Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred
in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common
Area Maintenance or “CAM” expenses). The Company includes these reimbursements, along with other revenue derived from
late fees and seasonal events, under the consolidated statements of operations captions "Retail center property tenant reimbursements”
and “Flex center property tenant reimbursements." This significantly reduces the Company’s exposure to increases
in costs and operating expenses resulting from inflation or other outside factors. The Company accrues reimbursements from tenants
for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. The Company calculates
the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator
of which is the total number of square feet being leased by the tenant, and the denominator of which is the average total square
footage of all leasable buildings at the property. The Company also receives payments for these reimbursements from substantially
all its tenants on a monthly basis throughout the year.
The
Company recognizes differences between previously estimated recoveries and the final billed amounts in the year in which the amounts
become final. During the years ended December 31, 2019 and 2018, respectively, the Company recognized $50,498 and $120,124,
respectively, in CAM reimbursement revenues.
The
Company recognizes lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured.
Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. During the years
ended December 31, 2019 and 2018, respectively, no such termination costs were recognized.
Hotel Property
Revenues
Hotel
revenues (from the Hampton Inn Property and Clemson Best Western Property) are recognized as earned, which is generally defined
as the date upon which a guest occupies a room or utilizes the hotel’s services.
The
Hampton Inn Property and Clemson Best Western Property are required to collect certain taxes and fees from customers on behalf
of government agencies and remit them back to the applicable governmental agencies on a periodic basis. The Hampton Inn Property
and Clemson Best Western Property have a legal obligation to act as a collection agent. The Hampton Inn Property and Clemson Best
Western Property do not retain these taxes and fees; therefore, they are not included in revenues. The Hampton Inn Property and
Clemson Best Western Property record a liability when the amounts are collected and relieves the liability when payments are made
to the applicable taxing authority or other appropriate governmental agency.
Hotel Property
Operating Expenses
All
personnel of the Hampton Inn Property and Clemson Best Western Property are directly or indirectly employees of Marshall, the hotel
manager. In addition to fees and services discussed above, the Hampton Inn Property and Clemson Best Western Property reimburses
Marshall for all employee related service costs, including payroll salaries and wages, payroll taxes and other employee benefits
paid by Marshall on behalf of the respective property. For the Hampton Inn Property, total amounts incurred for payroll salaries
and wages, payroll taxes and other employee benefits for the year ended December 31, 2019 and 2018 were $897,421 and $845,010,
respectively. For the Clemson Best Western Property, total amounts incurred for payroll salaries and wages, payroll taxes and other
employee benefits for the year ended December 31, 2019 and 2018 were $213,998 and $0, respectively. The amounts were included
in hotel property operating expenses in the accompanying consolidated statements of operations.
Rent and
other receivables and unbilled rent
Rent
and other receivables include tenant receivables related to base rents and tenant reimbursements. Unbilled rent includes receivables
attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of
accrued rents and accounts receivable based upon customer credit worthiness (including expected recovery of a claim with respect
to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past
due once it becomes delinquent per the terms of the lease. A past due receivable triggers certain events such as notices, fees
and other allowable and required actions per the lease. As of December 31, 2019 and 2018, the Company’s allowance for
uncollectible accounts totaled $8,615 and $15,194, respectively, which are comprised of amounts specifically identified based on
management’s review of individual tenants’ outstanding receivables. Management determined that no additional general
reserve is considered necessary as of December 31, 2019 and 2018, respectively.
Income Taxes
Beginning
with the Company’s taxable year ended December 31, 2017, the REIT has elected to be taxed as a real estate investment
trust for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations
relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least
90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements.
During
the year ended December 31, 2019, the REIT’s Hampton Inn TRS and Clemson Best Western Property entities generated a
tax loss, so no accrual was recorded. During the year ended December 31, 2018, the REIT’s Hampton Inn TRS entity generated
taxable income and an expense and accrual of $53,151 was recorded for federal and state income taxes. If the Company fails to
qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company
loses its REIT status it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was
due to reasonable cause and certain other conditions were satisfied.
Management
has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has
determined that the Company had no uncertain income tax positions.
Use of Estimates
The
Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reported period.
The Company’s actual results could differ from these estimates.
Loss on
Disposition of Furniture, Fixtures and Equipment
The
Company allocated and recorded a portion of the acquisition cost of the Hampton Inn Property to furniture, fixtures and equipment,
a component of investment properties on the consolidated balance sheet, when it acquired the Hampton Inn Property in November 2017.
As part of a property improvement plan for the Hampton Inn Property, the Company replaced a significant portion of the furniture,
fixtures and equipment it acquired. As a result, during the year ended December 31, 2019, the Company recorded a loss on disposition
of furniture, fixtures and equipment of $983,855, which represented the net book value of the assets that were disposed. No such
losses were recorded during the year ended December 31, 2018.
Noncontrolling
Interests
There
are three elements of noncontrolling interests in the capital structure of the Company. The ownership interests not held by the
REIT are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the consolidated
balance sheets but separate from the Company’s equity. On the consolidated statements of operations, the subsidiaries are
reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Consolidated
statements of changes in stockholders’ equity include beginning balances, activity for the period and ending balances for
shareholders’ equity, noncontrolling interests and total equity.
The
first noncontrolling interest is in the Hampton Inn Property in which the Company owns a 64 percent tenancy in common interest
through its subsidiaries and an outside party owns a 36 percent tenancy in common interest, as of December 31, 2019. In 2017,
the noncontrolling owner of the Hampton Inn Property provided $2.3 million as part of the acquisition of the Hampton Inn Property.
The Hampton Inn Property’s net loss is allocated to the noncontrolling ownership interest based on its 36 percent ownership.
During the years ended December 31, 2019, 36 percent of the Hampton Inn’s net loss of $2,017,362, or $726,249, was allocated
to the noncontrolling partnership interest. During the year ended December 31, 2018, 36 percent of the Hampton Inn’s
net loss of $461,982, or $166,314, was allocated to the noncontrolling ownership interest.
The
second noncontrolling interest is in the Hanover Square Property in which the Company owns an 84 percent tenancy in common interest
through its subsidiary and an outside party owns a 16 percent tenancy in common interest. The Hanover Square Property’s net
loss is allocated to the noncontrolling ownership interest based on its 16 percent ownership. During the year ended December 31,
2019, 16 percent of the Hanover Square Property’s net loss of $50,240 or $8,037, was allocated to the noncontrolling ownership
interest. During the year ended December 31, 2018, 16 percent of the Hanover Square Property’s net loss of $94,858,
or $15,177, was allocated to the noncontrolling ownership interest.
The
third noncontrolling ownership interest are the units in the Operating Partnership that are not held by the REIT. In 2017, 125,000
Operating Partnership units were issued to members of the selling LLC which owned the Hampton Inn Property who elected to participate
in a 721 exchange, which allows the exchange of interests in real property for shares in a real estate investment trust. These
members of the selling LLC invested $1,175,000 in the Operating Partnership in exchange for 125,000 Operating Partnership units.
The Operating Partnership units not held by the REIT represent 2.70 percent and 5.11 percent of the outstanding Operating Partnership
units as of December 31, 2019 and 2018, respectively. The noncontrolling interest percentage is calculated at any point in
time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest
ownership percentage will change as additional common or preferred shares are issued by the REIT, or additional Operating Partnerships
units are issued or as units are exchanged for the Company’s $0.01 par value per share Common Stock. During periods when
the Operating Partnership’s noncontrolling interest changes, the noncontrolling ownership interest is calculated based on
the weighted average Operating Partnership noncontrolling ownership interest during that period. The Operating Partnership’s
net loss is allocated to the noncontrolling unit holders based on their ownership interest.
During
the year ended December 31, 2019, a weighted average of 3.23 percent of the Operating Partnership’s net loss of $1,685,001,
or $54,490 was allocated to the noncontrolling unit holders. During the year ended December 31, 2018, a weighted average of
5.98 percent of the Operating Partnership’s net loss of $1,108,614, or $66,339 was allocated to the noncontrolling unit holders.
Recent Accounting
Pronouncements
For
each of the accounting pronouncements that affect the Company, the Company has elected or plans to elect to follow the rule that
allows companies engaging in an initial public offering as an Emerging Growth Company to follow the private company implementation
dates.
Revenue Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606), which supersedes the revenue recognition requirements of ASC Topic 605, Revenue Recognition and
most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and provides a
five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should
be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to
which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of
qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising
from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation
guidance on principal versus agent considerations. In June 2016, the FASB issued ASU 2016-12, Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which relates to assessing collectability, presentation
of sales taxes, noncash consideration and completed contracts and contract modifications in transition. In December 2016,
the FASB issued 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which
clarifies or corrects unintended application of the standard. Adoption is required for private companies for fiscal years beginning
after December 15, 2018. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue
from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). These amendments provide
additional clarification and implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with Customers
(Topic 606). The Company adopted Topic 606 effective on January 1, 2019.
A
majority of the Company’s tenant-related revenue from its Franklin Square, Hanover Square, Ashley Plaza and Brookfield
Center Properties is recognized pursuant to lease agreements and will be governed by the leasing guidance discussed
below. The Company evaluated its hotel revenues and concluded that the adoption of this standard did not impact
the amount or timing of revenue recognition in its consolidated financial statements. As previously discussed, the Company
completed its assessment of ASU No. 2014-09 and concluded that the guidance does not have a material impact on the
Company’s method of revenue recognition or on the consolidated financial statements.
Accounting
for Leases
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this update
govern a number of areas including, but not limited to, accounting for leases, replacing the existing guidance in ASC No. 840, Leases. Under
this standard, among other changes in practice, a lessee’s rights and obligations under most leases, including existing and
new arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet. Other significant
provisions of this standard include (i) defining the “lease term” to include the non-cancelable period together
with periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining
the initial lease liability to be recorded on the balance sheet to contemplate only those variable lease payments that depend on
an index or that are in substance “fixed,” (iii) a dual approach for determining whether lease expense is recognized
on a straight-line or accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion
of the leased asset’s economic benefits and (iv) a requirement to bifurcate certain lease and non-lease components. The
lease standard is effective for public companies for fiscal years beginning after December 15, 2018 (including interim periods
within those fiscal years) and for private companies, fiscal years beginning after December 15, 2020, with early adoption
permitted. The Company plans to adopt the standard effective on January 1, 2021. The accounting for leases under
which the Company is the lessor remains largely unchanged and the Company is not currently a “lessee” under any lease
agreements. Management does not believe the adoption will have a material impact on the Company’s consolidated financial
statements.
Credit Losses
on Financial Instruments
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. This update enhances the methodology of measuring expected credit losses to include the use of forward-looking
information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost
and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime
expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables,
represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed
the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the
reasons for those changes. For public companies, the guidance is effective for interim and annual reporting periods beginning after
December 15, 2019, or December 15, 2020 if they qualify as a smaller reporting company. For private companies, the guidance
will be effective for periods beginning after December 15, 2022. The Company is currently evaluating the impact the adoption
of the guidance will have on its consolidated financial statements and has not yet determined if it will adopt the update effective
on the required effective date of January 1, 2023, or whether it will elect earlier adoption.
Cash Flows
In
August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments."
This ASU amends guidance to either add or clarify the classification of certain cash receipts and payments in the statement of
cash flows. Eight specific issues were identified for further clarification and include: debt prepayment or extinguishment costs,
settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from
the settlement of insurance claims, proceeds from the settlement of company-owned life insurance policies, distributions received
from equity method investees, beneficial interests in securitization transactions and the classification of cash flows that have
aspects of more than one class of cash flows. The provisions of ASU No. 2016-15 were effective for the Company as of January 1,
2018. The Company adopted the standard using the modified retrospective approach, and the adoption did not have any impact to the
consolidated financial statements.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issues Task Force). The ASU provides guidance on the presentation of restricted cash or restricted cash equivalents
in the statement of cash flows in an effort to reduce diversity in practice. The standard requires a reconciliation of total cash,
cash equivalents and restricted cash, such as escrows and operating property reserves and property capital reserves, in the cash
flow statement or in the notes to the financial statements. This ASU was effective for public companies for annual and interim
reporting periods beginning after December 15, 2017, and for private companies for periods beginning after December 15,
2018. The new standard is to be applied retrospectively for all periods presented. The Company adopted the standard as of January 1,
2019. For the year ended December 31, 2018, the retrospective application resulted in a reduction of $30,090 in net cash used
in operating activities and an increase of $268,563 in net cash used in investing activities on the consolidated statements of
cash flows.
In addition, for presentation purposes,
the Company combined certain items included on its consolidated balance sheets as of December 31, 2018, to one restricted cash
line item. Specifically, security deposits ($71,022 as of December 31, 2018), escrows and operating property reserves ($719,588
as of December 31, 2018) and property capital reserves ($2,002,762 as of December 31, 2018), all of which were previously presented
separately on the Company’s December 31, 2018 consolidated balance sheets, have been combined and presented as restricted
cash.
Fair Value
Disclosures
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. This update eliminates or modifies certain existing disclosure requirements
for fair value measurements for all companies and also adds certain new disclosures for public companies. It is effective for all
companies for fiscal years beginning after December 15, 2019 (including interim periods within those fiscal years). The Company
will adopt ASU 2018-13 effective January 1, 2020. The changes will not have a material impact on the Company’s consolidated
financial statements.
Investment properties
consist of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Land
|
|
$
|
13,242,593
|
|
$
|
7,462,946
|
|
Site improvements
|
|
|
4,058,394
|
|
|
2,341,547
|
|
Buildings and improvements (a)
|
|
|
59,879,175
|
|
|
35,753,467
|
|
Furniture, fixtures and equipment (b)
|
|
|
2,122,317
|
|
|
1,733,273
|
|
Investment properties at cost (c)
|
|
|
79,302,479
|
|
|
47,291,233
|
|
Less accumulated depreciation
|
|
|
3,510,654
|
|
|
1,967,736
|
|
Investment properties, net
|
|
$
|
75,791,825
|
|
$
|
45,323,497
|
|
|
(a)
|
Includes tenant improvements (both those acquired at the acquisition and those constructed after the acquisition), tenant inducements, capitalized leasing commissions and other capital costs incurred post-acquisition.
|
|
(b)
|
As of December 31, 2019 and 2018, excludes $0 and $423,747, respectively, in pre-payments recorded as advance deposits for furniture and fixtures not yet received as part of the renovations of the Hampton Inn Property. The Company reclassifies the amounts recorded as advance deposits to a furniture and fixtures account when the assets are received or placed in service.
|
|
(c)
|
Excludes intangible assets and liabilities (see note, below), escrow deposits and property reserves.
|
The
Company’s depreciation expense on investment properties was $2,025,544 and $1,461,630 for the years ended December 31,
2019 and 2018, respectively.
The
Company generally records depreciation of capitalized tenant improvements and amortization of capitalized leasing commissions on
a straight-line basis over the terms of the related leases. Details of these deferred costs, net of depreciation and amortization
are as follows:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Capitalized tenant improvements, net
|
|
$
|
165,762
|
|
$
|
175,580
|
|
Capitalized leasing commissions, net
|
|
|
339,269
|
|
|
322,861
|
|
During
the year ended December 31, 2019 and 2018, the Company recorded $31,284 and $62,340, respectively, in capitalized tenant improvements.
Depreciation on capitalized tenant improvements was $41,102 and $22,850 for the year ended December 31, 2019 and 2018, respectively.
During
the year ended December 31, 2019 and 2018, the Company recorded $56,475 and $305,648, respectively in capitalized leasing
commissions. Amortization of capitalized leasing commissions was $40,067 and $25,075 for the year ended December 31, 2019
and 2018, respectively.
In
May 2018, the Company paid $125,000 to induce a tenant in the Franklin Square Property to release a restriction in its lease
that prohibited the Company from leasing space to a similar user. Capitalized tenant inducements are amortized as a reduction of
rental income over the term of the respective lease. Details of these deferred costs, net of depreciation and amortization, are
as follows:
|
|
December 31,
2019
|
|
|
December 31, 2018
|
|
Capitalized tenant inducements, net
|
|
$
|
96,600
|
|
|
$
|
113,640
|
|
Amortization
of the tenant inducement was $17,040 and $11,360 for the year ended December 31, 2019 and 2018, respectively.
A
significant portion of the Company’s land, buildings and improvements serve as collateral for its mortgage loans payable
portfolio. Accordingly, restrictions exist as to each property’s transferability, use and other common rights typically associated
with property ownership.
Property Acquisitions
2019 Acquisitions
The Ashley Plaza
Property
On
August 30, 2019, the Company completed its acquisition of the Ashley Plaza Property, a 160,356 square foot retail property
located in Goldsboro, North Carolina, through a wholly owned subsidiary. The Ashley Plaza Property, built in 1977 and fully renovated
in 2018, was 98 percent leased as of December 31, 2019 and is anchored by Hobby Lobby, Harbor Freight and Ashley Home Store.
The purchase price for the Ashley Plaza Property was $15,200,000 paid through a combination of cash provided by the Company, the
incurrence of new mortgage debt and funds from a line of credit, short term. The Company’s total investment, including $204,300
of loan issuance costs, was $15,885,444. The Company paid $357,823 of acquisition and closing costs which were capitalized and
added to the tangible assets acquired.
The Clemson
Best Western Property
On
September 27, 2019, the Company completed its acquisition of the Clemson Best Western Property, a 148 room hotel on 5.92 acres
located in Clemson, South Carolina, through a wholly owned subsidiary. The Clemson Best Western Property was built in 1982 and
substantially renovated in 2016 and 2017. The purchase price for the Clemson Best Western Property was $9,750,000 paid through
a combination of cash provided by the Company, the incurrence of new mortgage debt and funds from a line of credit, short term.
The Company’s total investment, including $269,254 of loan issuance costs, was $10,786,782. The Company paid $578,953 of
acquisition, closing costs and lease buy-out fees, which were capitalized and added to the tangible assets acquired.
The Brookfield
Center Property
On
October 3, 2019, the Company completed its acquisition of the Brookfield Center Property, a 64,880 square foot flex-industrial
property located in Greenville, South Carolina, through a wholly owned subsidiary. The Brookfield Center Property, built in 2007,
was 93.8 percent leased as of December 31, 2019. Major tenants include Gravitopia Trampoline Park and Summit Church. The purchase
price for the Brookfield Center Property was $6,700,000 paid through a combination of cash provided by the Company, the incurrence
of new mortgage debt and funds from related party notes payable, short term. The Company’s total investment, including $113,505
of loan issuance costs, was $7,102,643. The Company paid $207,957 of acquisition and closing costs which were capitalized and added
to the tangible assets acquired.
The
following summarizes the consideration paid and the fair values of the assets acquired and liabilities created or assumed in conjunction
with the acquisitions described above, along with a description of the methods used to determine fair value. Asset values presented
include allocated acquisition and closing costs.
|
|
Brookfield
Center
Property
|
|
|
Clemson
Best
Western
Property
|
|
|
Ashley Plaza Property
|
|
|
Total
|
|
Fair value of assets acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment property (a)
|
|
$
|
6,407,367
|
|
|
$
|
10,328,953
|
|
|
$
|
14,199,028
|
|
|
$
|
30,935,348
|
|
Lease intangibles and other assets (b)
|
|
|
493,849
|
|
|
|
-
|
|
|
|
2,142,124
|
|
|
|
2,635,973
|
|
Restricted cash created (c)
|
|
|
81,181
|
|
|
|
188,575
|
|
|
|
123,321
|
|
|
|
393,077
|
|
Above market leases (b)
|
|
|
6,741
|
|
|
|
-
|
|
|
|
195,386
|
|
|
|
202,127
|
|
Below market leases (b)
|
|
|
-
|
|
|
|
-
|
|
|
|
(978,715
|
)
|
|
|
(978,715
|
)
|
Fair value of net assets acquired (d)
|
|
$
|
6,989,138
|
|
|
$
|
10,517,528
|
|
|
$
|
15,681,144
|
|
|
$
|
33,187,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration paid with cash (e)
|
|
$
|
1,876,138
|
|
|
$
|
1,767,528
|
|
|
$
|
3,281,144
|
|
|
$
|
6,924,810
|
|
Consideration paid with new line of credit, short term (f)
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
2,000,000
|
|
Consideration paid with new related party note payable, short term (g)
|
|
|
263,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
263,000
|
|
Consideration paid with new mortgage debt (h)
|
|
|
4,850,000
|
|
|
|
7,750,000
|
|
|
|
11,400,000
|
|
|
|
24,000,000
|
|
Total consideration (i)
|
|
$
|
6,989,138
|
|
|
$
|
10,517,528
|
|
|
$
|
15,681,144
|
|
|
$
|
33,187,810
|
|
a.
|
Represents the
fair value of the investment property acquired which includes land, buildings, site improvements, tenant improvements and furniture,
fixtures and equipment. The fair value was determined using the market approach, the cost approach, the income approach or a combination
thereof. Closing and acquisition costs of $207,957 for the Brookfield Center Property, $578,953 for the Clemson Best Western Property
and $357,823 for the Ashley Plaza Property were allocated and added to the fair value of the tangible assets acquired.
|
b.
|
Represents the
fair value of lease intangibles and other assets. Lease intangibles include leasing commissions, leases in place, above market
leases, below market leases and legal and marketing costs associated with replacing existing leases.
|
c.
|
Represents deposits
paid by the Company at closing for real estate tax escrows and operating and capital reserves.
|
d.
|
Represents the
total fair value of assets and liabilities acquired at closing.
|
e.
|
Represents cash
paid at closing and cash paid for acquisition (including intangible assets), escrows, lease buy-out fees, and closing costs paid
outside of closing or directly by the Company.
|
f.
|
Represents
funds received from a line of credit, short term. See Note 4, below.
|
g.
|
Represents funds
received from related party notes payable, short term. See Note 4, below.
|
h.
|
Issuance of new
mortgage debt to fund the purchase of the properties. See Note 4, below.
|
i.
|
Represents
the consideration paid for the fair value of the assets and liabilities acquired.
|
2018 Acquisition
The Hanover
Square Property
On
May 8, 2018, the Company completed its acquisition of an 84 percent interest in the Hanover Square Property through a wholly
owned subsidiary. The Hanover Square Property, built in 2007, was 100 percent leased as of December 31, 2019 and is anchored
by Marshalls and an Old Navy store. The purchase price for the Hanover Square Property was $12,173,000 paid through a combination
of cash provided by the Company, assumed secured debt which amount was increased by additional debt and cash provided by the 16
percent noncontrolling investor. The Company’s total investment, including acquisition and closing costs, escrows and lease
reserves was $12,961,557, including $122,033 of loan issuance costs and $648,120 in cash provided by a non-controlling investor.
The
following summarizes the consideration paid and the fair values of assets acquired and liabilities assumed in conjunction with
the acquisition described above, along with a description of the methods used to determine fair value. Asset values presented include
allocated acquisition and closing costs.
|
|
Hanover
Square
|
|
Fair value of assets acquired
|
|
|
|
|
Investment property (a)
|
|
$
|
11,493,360
|
|
Lease intangibles and other assets (b)
|
|
|
1,093,057
|
|
Escrows and property reserves created or acquired (c)
|
|
|
300,000
|
|
Above market leases (b)
|
|
|
170,154
|
|
Below market leases (b)
|
|
|
(217,047
|
)
|
Fair value of net assets acquired (d)
|
|
$
|
12,839,524
|
|
|
|
|
|
|
Purchase consideration
|
|
|
|
|
Consideration paid with cash (e)
|
|
$
|
3,291,404
|
|
Consideration paid with assumed mortgage debt (f)
|
|
|
8,527,315
|
|
Consideration paid with new mortgage debt (g)
|
|
|
372,685
|
|
Consideration paid by noncontrolling interest (h)
|
|
|
648,120
|
|
Total consideration (i)
|
|
$
|
12,839,524
|
|
|
(a)
|
Represents the fair value of the investment property acquired which includes land, buildings, site improvements, tenant improvements and furniture and fixtures. The fair value was determined using the market approach, the cost approach, the income approach or a combination thereof. Closing and acquisition costs were allocated and added to the fair value of the tangible assets acquired.
|
|
(b)
|
Represents the fair value of lease intangibles and other assets. Lease intangibles include leasing commissions, leases in place, above market leases, below market leases and legal and marketing costs associated with replacing existing leases.
|
|
(c)
|
Escrow deposits are restricted cash balances held by lenders for real estate taxes, insurance and reserves for capital improvements. These are generally created at closing. For the Hanover Square Property, $200,000 in existing reserves were purchased at closing from the Seller as part of the loan assumption (see (f) below) and the Company funded $100,000 in additional escrows at closing.
|
|
(d)
|
Represents the total fair value of assets and liabilities acquired at closing.
|
|
(e)
|
Represents cash paid at closing and cash paid for acquisition (including intangible assets), escrows and closing costs paid outside of closing or directly by the Company.
|
|
(f)
|
Assumption of mortgage debt related to the purchase of the Hanover Square Property.
|
|
(g)
|
Issuance of new mortgage debt (an increase in the amount of the assumed mortgage) to fund the purchase of the Hanover Square Property. See mortgages payable.
|
|
(h)
|
Represents investment of noncontrolling interest paid at closing for the Hanover Square Property.
|
|
(i)
|
Represents the consideration paid for the fair value of the assets and liabilities acquired.
|
Mortgages
Payable
The
Company’s mortgages payables, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Property
|
|
Monthly
Payment
|
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Franklin Square
|
|
|
Interest only
|
|
|
|
4.70
|
%
|
|
October 2021
|
|
|
$
|
14,275,000
|
|
|
$
|
14,275,000
|
|
Hampton Inn (a)
|
|
|
Interest only
|
|
|
|
Variable
|
(b)
|
|
November 2020
|
|
|
|
10,600,000
|
|
|
|
10,600,000
|
|
Hanover Square (c)
|
|
$
|
51,993
|
|
|
|
4.90
|
%
|
|
December 2027
|
|
|
|
8,592,195
|
|
|
|
8,772,562
|
|
Ashley Plaza (d)
|
|
|
Interest only
|
|
|
|
3.75
|
%
|
|
September 2029
|
|
|
|
11,400,000
|
|
|
|
-
|
|
Clemson Best Western (e)
|
|
|
Interest only
|
|
|
|
Variable
|
|
|
October 2022
|
|
|
|
7,750,000
|
|
|
|
-
|
|
Brookfield Center (f)
|
|
|
Interest only
|
|
|
|
3.90
|
%
|
|
November 2029
|
|
|
|
4,850,000
|
|
|
|
-
|
|
Unamortized issuance costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(766,293
|
)
|
|
|
(411,165
|
)
|
Total mortgages payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,700,902
|
|
|
$
|
33,236,397
|
|
|
(a)
|
Certain of the Company’s obligation under the mortgage loan for the Hampton Inn Property to complete a property improvement plan (PIP) are guaranteed by individual members of the Manager and by an individual member of the noncontrolling owner. This guarantee is irrevocable and unconditional and requires the PIP work to be completed on schedule and free of all liens. As of December 31, 2019, the PIP was substantially complete.
|
|
(b)
|
The mortgage loan for the Hampton Inn Property bears interest at a variable rate based on LIBOR with a minimum rate of 6.1 percent. The interest rate payable is the USD LIBOR one-month rate plus 5 percent. As of December 31, 2019 and 2018, the rate in effect for the Hampton Inn Property mortgage was 6.75 percent and 7.50 percent, respectively. The mortgage loan for the Hampton Inn property matures on November 9, 2020. However, the Company has options to extend the term of the mortgage loan for two successive 12 month terms.
|
|
(c)
|
The mortgage loan for the Hanover Square Property bears interest at a fixed rate of 4.9 percent until January 2023, when the interest rate adjusts to a new fixed rate which will be determined by adding 3.10 percentage points to the daily average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available by the Federal Reserve Board, with a minimum of 4.9 percent. The fixed monthly payment includes principal and interest. The mortgage loan agreement for the Hanover Square property includes covenants to (i) maintain a Debt Service Coverage Ratio (“DSCR”) in excess of 1.35 to 1.00 and (ii) maintain a loan-to-value of real estate ratio of 75 percent. As of December 31, 2019 and 2018, respectively, the Company believes that it is complaint with these covenants.
|
|
(d)
|
The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75 percent and is interest only for the first twelve months. Beginning on October 1, 2020, the monthly payment will be $52,795 for the remaining term of the loan, which will include interest at the fixed rate, and principal, based on a thirty year amortization schedule.
|
|
(e)
|
The mortgage loan for the Clemson Best Western Property bears interest at a variable rate based on LIBOR with a minimum rate of 7.15 percent. The interest rate payable is the USD LIBOR one-month rate plus 4.9 percent. As of December 31, 2019, the rate in effect for the Clemson Best Western Property mortgage was 7.15 percent.
|
|
(f)
|
The mortgage loan for the Brookfield Property bears interest at a fixed rate of 3.90 percent and is interest only for the first twelve months. Beginning on November 1, 2020, the monthly payment will be $22,876 for the remaining term of the loan, which will include interest at the fixed rate, and principal, based on a thirty year amortization schedule.
|
Line of
credit, short term and note payable, short term
As
of December 31, 2019, the Company had a line of credit, short term outstanding in the principal amount of $2,000,000. The
line of credit, short term, was established on August 21, 2019 to provide short term funding for the Company’s acquisition
of the Ashley Plaza Property and the Clemson Best Western Property (see note on 2019 acquisitions, above). On August 29, 2019,
the Company received $1,000,000 in funding from the line of credit, short term, to fund a portion of its acquisition of the Ashley
Plaza Property. On September 26, 2019, the Company received an additional $1,000,000 to fund a portion of its acquisition
of the Clemson Best Western Property. The Company paid $30,000 of loan fees, which were recorded as capitalized issuance costs,
which are presented as a direct reduction of the associated debt. The line of credit, short term, has a six month term and matures
on February 21, 2020.
The
line of credit, short term, bears interest at a variable rate calculated at 250 basis points over USD 1-Month LIBOR as published
in the Wall Street Journal. The rate adjusts on the first day of each month during which the loan is outstanding. As of December 31,
2019, the rate in effect for the line of credit, short term, was 4.285 percent. Interest expense includes amortization of the capitalized
issuance costs using the straight-line method, which approximates to the effective interest method, over the six-month term of
the loan.
As
of December 31, 2018, the Company had no line of credit, short term outstanding.
During
the year ended December 31, 2018, the Company repaid a note payable, short term in the principal amount of $1,500,000. In
addition, the Company accrued and paid $27,485 in interest and fees related to the note payable, short term, all of which was recorded
as interest, during the year ended December 31, 2018.
Related
party notes payable, short term
As
of December 31, 2019, the Company had related party notes payable, short term, outstanding in the principal amount of $852,000
(see related party transactions, below). These notes were issued on September 30, 2019 in the principal amount of $183,000
and on October 2, 2019 in the principal amount of $80,000, both to fund a portion of the Company’s acquisition of the
Brookfield Center Property, which closed on October 3, 2019. In addition, the Company issued a related party note payable
in the principal amount of $589,000 on November 29, 2019 to fund dividends and working capital requirements. The related party
notes payable are due on demand and bear interest at a rate of 5 percent annually.
As
of December 31, 2018, the Company had no related party notes payable, short term, outstanding. During the year ended December 31,
2018, the Company repaid related party notes payable, short term, to five related parties totaling $677,538. In addition, the Company
accrued and paid $9,200 in interest related to the related party notes payable, short term during the year ended December 31,
2018.
Interest
expense – loans payable
Interest
expense, including amortization of capitalized issuance costs and payments received from the Company’s interest rate protection
transactions for the Hampton Inn Property, consists of the following:
|
|
For the year ended December 31, 2019
|
|
|
|
Mortgage
Interest
Expense
|
|
|
Amortization
of capitalized
issuance costs
|
|
|
Interest
rate
protection transaction
payments
|
|
|
Other
interest
expense
|
|
|
Total
|
|
Franklin Square
|
|
$
|
680,241
|
|
|
$
|
18,552
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698,793
|
|
Hanover Square
|
|
|
426,635
|
|
|
|
12,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
439,367
|
|
Hampton Inn
|
|
|
783,517
|
|
|
|
139,560
|
|
|
|
(39,161
|
)
|
|
|
11,289
|
|
|
|
895,205
|
|
Ashley Plaza
|
|
|
147,251
|
|
|
|
5,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153,063
|
|
Clemson Best Western
|
|
|
155,463
|
|
|
|
22,437
|
|
|
|
-
|
|
|
|
2,048
|
|
|
|
179,948
|
|
Brookfield Center
|
|
|
47,814
|
|
|
|
2,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,652
|
|
Line of credit, short term
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
26,916
|
|
|
|
46,916
|
|
Related party notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,875
|
|
|
|
5,875
|
|
Other interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,809
|
|
|
|
2,809
|
|
Total interest expense
|
|
$
|
2,240,921
|
|
|
$
|
221,931
|
|
|
$
|
(39,161
|
)
|
|
$
|
48,937
|
|
|
$
|
2,472,628
|
|
|
|
For the year ended December 31, 2018
|
|
|
|
Mortgage
Interest
Expense
|
|
|
Amortization
of capitalized
issuance
costs
|
|
|
Interest
rate
protection
transaction
payments
|
|
|
Other
interest
expense
|
|
|
Total
|
|
Franklin Square
|
|
$
|
680,242
|
|
|
$
|
18,552
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698,794
|
|
Hanover Square
|
|
|
280,377
|
|
|
|
8,488
|
|
|
|
-
|
|
|
|
-
|
|
|
|
288,865
|
|
Hampton Inn
|
|
|
761,544
|
|
|
|
139,560
|
|
|
|
(12,330
|
)
|
|
|
2,609
|
|
|
|
891,383
|
|
Ashley Plaza
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Clemson Best Western
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,485
|
|
|
|
27,485
|
|
Related party notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,200
|
|
|
|
9,200
|
|
Other interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,456
|
|
|
|
1,456
|
|
Total interest expense
|
|
$
|
1,722,163
|
|
|
$
|
166,600
|
|
|
$
|
(12,330
|
)
|
|
$
|
40,750
|
|
|
$
|
1,917,183
|
|
Interest
accrued and accumulated amortization of capitalized issuance costs consist of the following:
|
|
As of December 31, 2019
|
|
|
As of December 31, 2018
|
|
|
|
Accrued
interest
|
|
|
Accumulated
amortization of
capitalized
issuance costs
|
|
|
Accrued
interest
|
|
|
Accumulated
amortization
of capitalized
issuance costs
|
|
Franklin Square
|
|
$
|
57,774
|
|
|
$
|
49,473
|
|
|
$
|
57,774
|
|
|
$
|
30,921
|
|
Hanover Square
|
|
|
35,085
|
|
|
|
21,220
|
|
|
|
-
|
|
|
|
8,488
|
|
Hampton Inn
|
|
|
61,613
|
|
|
|
302,381
|
|
|
|
-
|
|
|
|
162,821
|
|
Ashley Plaza
|
|
|
-
|
|
|
|
5,812
|
|
|
|
-
|
|
|
|
-
|
|
Clemson Best Western
|
|
|
47,716
|
|
|
|
22,437
|
|
|
|
-
|
|
|
|
-
|
|
Brookfield Center
|
|
|
-
|
|
|
|
2,838
|
|
|
|
-
|
|
|
|
-
|
|
Line of credit, short term
|
|
|
9,522
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Related party notes payable, short term
|
|
|
5,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
217,585
|
|
|
$
|
424,161
|
|
|
$
|
57,774
|
|
|
$
|
202,230
|
|
Debt Maturity
The
Company’s scheduled principal repayments on indebtedness as of December 31, 2019 are as follows:
|
|
Mortgages
Payable
|
|
|
Line of
Credit,
Short Term
|
|
|
Related
Party Notes
Payable,
Short Term
|
|
|
Total
|
|
2020
|
|
$
|
10,863,420
|
|
|
$
|
2,000,000
|
|
|
$
|
852,000
|
|
|
$
|
13,715,420
|
|
2021
|
|
|
14,777,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,777,198
|
|
2022
|
|
|
8,274,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,274,334
|
|
2023
|
|
|
547,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
547,460
|
|
2024
|
|
|
568,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
568,879
|
|
Thereafter
|
|
|
22,435,904
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,435,904
|
|
Total Maturities
|
|
|
57,467,195
|
|
|
|
2,000,000
|
|
|
|
852,000
|
|
|
|
60,319,195
|
|
Less unamortized issuance costs
|
|
|
(766,293
|
)
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
(776,293
|
)
|
Total principal payments and debt maturities
|
|
$
|
56,700,902
|
|
|
$
|
1,990,000
|
|
|
$
|
852,000
|
|
|
$
|
59,542,902
|
|
5.
|
Rentals under Operating Leases
|
Future
minimum rentals (based on recognizing future rents on the straight-line basis) to be received under noncancelable tenant operating
leases for each of the next five years and thereafter, excluding common area maintenance and other expense pass-throughs, as of
December 31, 2019 are as follows:
2020
|
|
$
|
4,983,464
|
|
2021
|
|
|
4,729,085
|
|
2022
|
|
|
3,686,198
|
|
2023
|
|
|
2,837,776
|
|
2024
|
|
|
2,220,199
|
|
Thereafter
|
|
|
5,680,079
|
|
Total minimum rents
|
|
$
|
24,136,801
|
|
The
Company has authority to issue 1,000,000,000 shares consisting of 750,000,000 shares of common stock, $0.01 par value per share
("Common Shares"), and 250,000,000 shares of preferred stock, $0.01 par value per share ("Preferred Shares").
Substantially all of the Company’s business is conducted through its Operating Partnership. The REIT is the sole general
partner of the Operating Partnership and owned a 97.30% and 94.89% interest in the Operating Partnership as of December 31,
2019 and 2018, respectively. Limited partners in the Operating Partnership who have held their units for one year or longer have
the right to redeem their common units for cash or, at the REIT’s option, Common Shares at a ratio of one common unit for
one common share. Under the Agreement of Limited Partnership, distributions to unit holders are made at the discretion of the REIT.
The REIT intends to make distributions in a manner that will result in limited partners of the Operating Partnership receiving
distributions at the same rate per unit as dividends per share are paid to the REIT’s holders of Common Shares.
2019 Issuances
On
May 8, 2019, the Company issued and sold 1,666,667 Common Shares at an offering price of $4.80 per share. Net proceeds from
the issuance totaled $7,222,501, which includes the impact of discounts and offering costs, including the underwriter’s selling
commissions and legal fees. On May 21, 2019, the company issued and sold 227,062 Common Shares at an offering price of $4.80
per share, pursuant to its underwriter’s over-allotment option related to the May 8, 2019 offering. Net proceeds from
the issuance totaled $991,807, which includes the impact of discounts and offering costs, including the underwriter’s selling
commissions. On May 31, 2019, the Company issued and sold 270,833 shares pursuant to a private placement at an offering price
of $4.80 per share. Net proceeds from the issuance totaled $1,183,998, which includes the impact of discounts and offering costs,
including the underwriter’s selling commissions and legal fees. During the year ended December 31, 2019, the Company
incurred $970,667 in offering costs, including legal, accounting, advisory and other professional fees.
2018 Issuances
In
January 2018, the Company issued and sold 775,460 Common Shares and in February, 2018 the Company issued and sold 63,620 Common
Shares at an offering price of $10.00 per share. Net proceeds from the issuances totaled $7,684,167, which includes the impact
of discounts and offering costs, including the underwriters' selling commissions and legal, accounting and other professional fees.
On
June 6, 2018 the Company issued and sold 8,500 Common Shares at an offering price of $10.00 per share. Net proceeds from the
issuance totaled $65,825, which includes the impact of discounts and offering costs, including the underwriter’s selling
commissions and legal, accounting and other professional fees.
On
November 30, 2018, the Company completed its initial registered public offering under which it issued and sold 240,000 Common
Shares at an offering price of $10.00 per share. Net proceeds from the issuance totaled $1,838,727, which includes the impact of
discounts and offering costs, including the underwriter’s selling commissions and legal, accounting and other professional
fees. The Company also incurred $299,624 in other issuance costs during the year ended December 31, 2018.
Common shares
and operating partnership units outstanding
As
of December 31, 2019 and 2018, respectively, there were 4,625,144 and 2,446,582 common units of the Operating Partnership
outstanding with the REIT owning 4,500,144 and 2,321,582, respectively, of these common units. As of December 31, 2019 and
2018, respectively, there were 4,500,144 and 2,321,582 Common Shares of the REIT outstanding. As of December 31, 2019 and
2018, respectively, there were 125,000 common units of the Operating Partnership that were eligible for conversion to the Company’s
Common Shares.
Warrants
to purchase shares of common stock
On
October 4, 2018, the Company issued a warrant to Moloney Securities Co. Inc. (the “Holder”), the lead underwriter
of the issuances of the Company’s Common Shares in 2017 and the first six months of 2018, which grants the Holder the right
to purchase 49,890 shares of the Company’s Common Shares, in whole or in part, at an exercise price of $12.50 per share,
subject to certain conditions. The warrant was valued at $49,890 in the consolidated financial statements, its fair value as of
the date of issuance using the Black-Scholes Model.
2018 Equity Incentive Plan
The
Company’s 2018 Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of Directors on July 27,
2018 and approved by the Company’s shareholders on August 23, 2018. The Plan permits the grant of stock options, stock
appreciation rights, stock awards, performance units, incentive awards and other equity-based awards (including LTIP units of the
Company’s Operating Partnership) to its employees or an affiliate (as defined in the Plan) of the Company and for up to the
greater of (i) 240,000 shares of common stock and (ii) eight percent (8%) of the number of fully diluted shares of the
Company’s Common Shares (taking into account interests in the Operating Partnership that may become convertible into Common
Shares).
On
August 31, 2018, the Company’s Board of Directors approved a grant of 80,000 shares of Common Shares to two employees
of the Manager who also serve as directors of the Company and a grant of 6,000 Common Shares to the Company’s three independent
directors. The effective date of the grants was December 4, 2018, the date on which the registration of the Plan shares was
effective. The Common Shares granted vested immediately, but were restricted for 180 days by a lock-up agreement associated with
the Company’s November 30, 2018 initial public offering and a second 180-day lock-up agreement associated with the Company’s
issuance of Common Shares on May 8, 2019. In addition, the Plan includes other restrictions on the sale of shares issued under
the Plan. Because the Common Shares vested immediately, the fair value of the grants, or $790,340, was recorded to expense on the
effective date of the grant. The fair value of the grants was determined by the market price of the Company’s Common Shares
on the effective date of the grant.
On
July 18, 2019, the Company’s Board of Directors approved a grant of 14,000 Common Shares to the Company’s five
independent directors. The effective date of the grants was July 18, 2019. The Common Shares granted vest immediately and
are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common
Shares vest immediately, the fair value of the grants, or $61,600, was recorded to expense on the effective date of the grant.
The fair value of the grants was determined by the market price of the Company’s Common Shares on the effective date of the
grant.
As
of December 31, 2019, there are 140,000 shares available for issuance under the Plan. On each January 1 during the term
of the Plan, the maximum number of shares of common stock that may be issued under the Plan will increase by eight percent (8%)
of any additional shares of common stock or interests in the Operating Partnership issued (i) after the completion date the
Company’s initial registered public offering of common stock, in the case of the January 1, 2019 adjustment, or (ii) in
the preceding calendar year, in the case of the January 1, 2020 adjustment and any subsequent adjustment. No adjustment to
shares available for issuance under the Plan was made as of January 1, 2019. As of January 1, 2020, the shares available
for issuance under the plan will adjust to 313,165 shares.
Earnings
per share
Basic
earnings per share for the Company’s Common Shares is calculated by dividing income (loss) from continuing operations, excluding
the net income (loss) attributable to noncontrolling interests, by the Company’s weighted-average number of Common Shares
outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders,
excluding the net loss attributable to noncontrolling interests, by the weighted average number of Common Shares, including any
dilutive shares. As of December 31, 2019 and 2018, all of the Operating Partnership’s 125,000 common units outstanding
were eligible to be converted, on a one-to-one basis, into Common Shares. The Operating Partnership’s common units have been
excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive.
The Company's loss
per common share is determined as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Basic and diluted shares outstanding
|
|
|
|
|
|
|
|
|
Weighted average Common Shares – basic
|
|
|
3,683,171
|
|
|
|
1,967,980
|
|
Effect of conversion of operating partnership units
|
|
|
125,000
|
|
|
|
125,000
|
|
Weighted average common shares – diluted
|
|
|
3,808,171
|
|
|
|
2,092,980
|
|
|
|
|
|
|
|
|
|
|
Calculation of earnings per share – basic and diluted
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(3,015,718
|
)
|
|
$
|
(2,743,323
|
)
|
Weighted average Common Shares – basic and diluted
|
|
|
3,683,171
|
|
|
|
1,967,980
|
|
Loss per share – basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(1.39
|
)
|
Dividends and Distributions
During
the year ended December 31, 2019, dividends were declared and paid as follows:
Declaration date
|
|
Record date
|
|
Payment date
|
|
Dividend per share
|
|
May 14, 2019
|
|
May 24, 2019
|
|
May 28, 2019
|
|
$
|
0.175
|
|
June 28, 2019
|
|
July 12, 2019
|
|
July 17, 2019
|
|
$
|
0.175
|
|
October 23, 2019
|
|
November 13, 2019
|
|
December 4, 2019
|
|
$
|
0.175
|
|
In
addition, a dividend in the amount of $0.125 per share was declared on November 27, 2019 payable on March 10, 2020 to
shareholders of record on February 11, 2020.
During
the year ended December 31, 2018, dividends were declared as follows:
Declaration date
|
|
Record date
|
|
Payment date
|
|
Dividend per share
|
|
March 28, 2018
|
|
April 2, 2018
|
|
April 5, 2018
|
|
$
|
0.175
|
|
July 12, 2018
|
|
July 12, 2018
|
|
July 16, 2018
|
|
$
|
0.175
|
|
November 30, 2018
|
|
December 12, 2018
|
|
December 14, 2018
|
|
$
|
0.175
|
|
Total
dividends and distributions to noncontrolling interests paid during the years ended December 31, 2019 and 2018, respectively,
are as follows:
|
|
Year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Common shareholders (dividends)
|
|
$
|
2,310,363
|
|
|
$
|
1,088,215
|
|
Hanover Square Property noncontrolling interest (distributions)
|
|
|
60,115
|
|
|
|
36,000
|
|
Hampton Inn Property noncontrolling interest (distributions)
|
|
|
-
|
|
|
|
24,000
|
|
Operating Partnership unit holders (distributions)
|
|
|
65,625
|
|
|
|
65,625
|
|
Total dividends and distributions
|
|
$
|
2,436,103
|
|
|
$
|
1,213,840
|
|
7.
|
Commitments and Contingencies
|
Insurance
The
Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all
of the properties in its portfolio, in addition to other coverages that may be appropriate for certain of its properties. Additionally,
the Company carries a directors and officers liability insurance policy that covers such claims made against the Company and its
directors and officers. The Company believes the policy specifications and insured limits are appropriate and adequate for its
properties given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may
not be sufficient to fully cover its losses.
Concentration
of Credit Risk
The
Company is subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others,
the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of
tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential
liability under environmental and other laws. The Company’s portfolio of properties is dependent upon regional and local
economic conditions and is geographically concentrated in the Mid-Atlantic which represented 100 percent of the total annualized
base revenues of the properties in its portfolio as of December 31, 2019. The Company’s geographic concentration may
cause it to be more susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio.
Additionally, the Company’s retail shopping center property depends on anchor stores or major tenants to attract shoppers
and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.
Regulatory
and Environmental
As
the owner of the buildings on its properties, the Company could face liability for the presence of hazardous materials (e.g., asbestos
or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence,
maintenance, and removal of hazardous materials in buildings, and if the Company does not comply with such laws, it could face
fines for such noncompliance. Also, the Company could be liable to third parties (e.g., occupants of the buildings) for damages
related to exposure to hazardous materials or adverse conditions in its buildings, and the Company could incur material expenses
with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some
of the Company’s tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations
at the Company’s properties, which are subject to regulation. Such environmental and health and safety laws and regulations
could subject the Company or its tenants to liability resulting from these activities. Environmental liabilities could affect a
tenant’s ability to make rental payments to the Company, and changes in laws could increase the potential liability for noncompliance.
This may result in significant unanticipated expenditures or may otherwise materially and adversely affect the Company’s
operations. The Company is not aware of any material contingent liabilities, regulatory matters or environmental matters that may
exist.
Seasonality
The
hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause
quarterly fluctuations in its revenues. Occupancy rates and hotel revenues for the Company’s Hampton Inn Property are highest
in April/May and October due to a local event that generates significant demand, and generally greater in the second
and third quarters than in the first quarter and in November and December. Occupancy rates and hotel revenues for the Company’s
Clemson Best Western Property are highest in the spring and fall months, due to sporting events at Clemson University. To the extent
that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company
expects to utilize cash on hand or available financing sources to meet cash requirements.
Litigation
The Company is
not currently involved in any litigation or legal proceedings.
8.
|
Related Party Transactions
|
Medalist
Fund Manager, Inc. (the “Manager”)
The
Company is externally managed by the Manager, which makes all investment decisions for the Company. The Manager oversees the Company’s
overall business and affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment
decisions.
The
Company pays the Manager a monthly asset management fee equal to 0.125% of stockholders’ equity, payable in arrears in cash.
For purposes of calculating the asset management fee, the Company’s stockholders’ equity means: (a) the sum of
(1) the net proceeds from (or equity value assigned to) all issuances of the Company’s equity and equity equivalent
securities (including common stock, common stock equivalents, preferred stock and OP Units issued by the Company’s operating
partnership) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance),
plus (2) the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking
into account any non-cash equity compensation expense incurred in current or prior periods), less (b) any amount that the
Company has paid to repurchase its common stock issued in this or any subsequent offering. Stockholders’ equity also excludes
(1) any unrealized gains and losses and other non-cash items (including depreciation and amortization) that have impacted
stockholders’ equity as reported in the Company’s consolidated financial statements prepared in accordance with GAAP,
and (2) one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above, in each case
after discussions between the Company’s Manager and its independent director(s) and approval by a majority of its independent
directors.
For
the year ended December 31, 2019 and 2018, the Company incurred $486,042 and $340,436, in asset management fees, respectively.
Asset management fees are recorded on the Company’s consolidated statements of operations as either (i) retail center
property operating expenses, (ii) hotel property operating expenses or (iii) legal, accounting and other professional
fees, depending on the basis on which the asset management fee is determined.
The
Manager also receives an acquisition fee of 2.0% of the purchase price plus transaction costs, for each property acquired or investment
made on the Company’s behalf at the closing of the acquisition of such property or investment, in consideration for the Manager’s
assistance in effectuating such acquisition. Acquisition fees are allocated and added to the fair value of the tangible assets
acquired. Repayment of funds advanced are recorded as a reduction in outstanding accounts payable and accrued liabilities. For
the year ended December 31, 2019, the Company incurred and paid $649,171 in acquisition fees associated with the Ashley Plaza
Property, Clemson Best Western Property and Brookfield Center transactions. During the year ended December 31, 2018, the Company
incurred and paid $252,451 in acquisition fees associated with the Hanover Square Property transaction.
The
Manager will be entitled to an incentive fee, payable quarterly, equal to an amount, not less than zero, equal to the difference
between (1) the product of (x) 20% and (y) the difference between (i) Adjusted Funds from Operations (AFFO)
(as further defined below) for the previous 12-month period, and (ii) the product of (A) the weighted average of the
issue price of equity securities issued in this offering and in future offerings and transactions, multiplied by the weighted average
number of all shares of common stock outstanding on a fully-diluted basis (including any restricted stock units, any restricted
shares of common stock and OP Units) in the previous 12-month period, exclusive of equity securities issued prior to this offering,
and (B) 7%, and (2) the sum of any incentive fee paid to the Manager with respect to the first three calendar quarters
of such previous 12-month period. For purposes of calculating the incentive fee during the first years after completion of this
offering, adjusted funds from operations (“AFFO”) will be determined by annualizing the applicable period following
completion of this offering. AFFO is calculated by removing the effect of items that do not reflect ongoing property operations.
The Company further adjusts funds from operations (“FFO”) for certain items that are not added to net income in the
National Association of Real Estate Investment Trusts’ (NAREIT) definition of FFO, such as acquisition expenses, equity based
compensation expenses, and any other non-recurring or non-cash expenses, which are costs that do not relate to the operating performance
of the Company’s properties, and subtract recurring capital expenditures (and, when calculating the incentive fee only, we
further adjust FFO to include any realized gains or losses on real estate investments). No incentive fees were earned or paid during
the year ended December 31, 2019 or 2018.
In
addition to the asset management fees paid to the Manager, during the year ended December 31, 2019 and 2018, respectively,
the Company repaid the Manager $4,627 and $241,023 for funds advanced by the Manager on behalf of the Company.
During
the year ended December 31, 2019, the Company entered into a series of related party notes payable, short term with the Manager
by which the Manager advanced funds for acquisitions, dividends and working capital. On September 30, 2019 and October 2,
2019, the Manager advanced $183,000 and $80,000 respectively, to fund a portion of the Company’s acquisition of the Brookfield
Center Property which closed on October 3, 2019. On November 29, 2019, the Manager advanced $589,000 to the Company to
fund dividends and working capital requirements. The notes are due on demand and bears interest at a rate of 5 percent annually.
Interest accrued on the related party notes payable, short term was $5,875 as of December 31, 2019.
Other related
parties
The
Company pays Shockoe Properties, LLC, a subsidiary of Dodson Properties, an entity in which one of the owners of the Manager holds
a 6.32 percent interest, an annual property management fee of up to 3 percent of the monthly gross revenues of the Franklin Square,
Hanover Square, Ashley Plaza and Brookfield properties. These fees are paid in arrears on a monthly basis. During the year ended
December 31, 2019 and 2018, the Company paid Shockoe Properties, LLC property management fees of $130,620 and $86,077, respectively.
The
Company establishes operating segments at the property level and aggregates individual properties into reportable segments based
on product types in which the Company has investments. As of December 31, 2019, the Company had the following reportable segments:
retail center properties, flex center properties and hotel properties. During the periods presented, there have been no material
intersegment transactions.
Although
the Company’s flex center property has tenants that are similar to tenants in its retail center properties, the Company considers
its flex center properties as a separate reportable segment. Flex properties are considered by the real estate industry as a distinct
subset of the industrial market segment. Flex properties contain a mix of industrial/warehouse and office spaces. Warehouse space
that is not air conditioned can be used flexibly by building out office or showroom space that is air conditioned, depending on
tenants’ needs.
Net
operating income ("NOI") is a non-GAAP financial measure and is not considered a measure of operating results or cash
flows from operations under GAAP. NOI is the primary performance measure reviewed by management to assess operating performance
of properties and is calculated by deducting operating expenses from operating revenues. Operating revenues include rental income,
tenant reimbursements, hotel income, and other property income; and operating expenses include retail center property and hotel
operating costs. The NOI performance metric consists of only revenues and expenses directly related to real estate rental operations.
NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability
of operating expenses. NOI, as the Company calculates it, may not be directly comparable to similarly titled, but differently calculated,
measures for other REITs.
Asset
information and capital expenditures by segment are not reported because the Company does not use these measures
to assess performance. Depreciation and amortization expense, along with other expense and income items, are not
allocated among segments.
The
following table presents property operating revenues, expenses and NOI by product type:
|
|
For the year ended December 31,
|
|
|
Hotel property
|
|
|
Retail center properties
|
|
|
Flex center property
|
|
|
Total
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
Revenues
|
|
$
|
3,898,254
|
|
|
$
|
3,676,169
|
|
|
$
|
4,186,745
|
|
|
$
|
2,913,782
|
|
|
$
|
183,769
|
|
|
$
|
-
|
|
|
$
|
8,268,768
|
|
|
$
|
6,589,951
|
Operating expenses
|
|
|
3,156,664
|
|
|
|
2,608,825
|
|
|
|
1,134,718
|
|
|
|
976,468
|
|
|
|
55,266
|
|
|
|
-
|
|
|
|
4,346,648
|
|
|
|
3,585,293
|
Net operating income
|
|
$
|
741,590
|
|
|
$
|
1,067,344
|
|
|
$
|
3,052,027
|
|
|
$
|
1,937,314
|
|
|
$
|
128,503
|
|
|
$
|
-
|
|
|
$
|
3,922,120
|
|
|
$
|
3,004,658
|
As
of March 24, 2020, the following events have occurred subsequent to the December 31, 2019 effective date of the consolidated
financial statements:
Hampton
Inn Property ownership restructuring
Effective
on January 1, 2020, the Company entered into a transaction with the noncontrolling owner of the Hampton Inn Property by which
the noncontrolling owner exchanged (i) approximately 7.55 percent of its tenant in common interest in the Hampton Inn Property
for the settlement of $867,000 in advances made by the Company to the Hampton Inn Property; and (ii) approximately 3.45 percent
of its tenant in common interest in the Hampton Inn Property for 93,580 units of the Operating Partnership. As a result of this
transaction, the Company’s tenant-in-common interest in the Hampton Inn Property increased from 64 percent to 75 percent,
and the noncontrolling owner’s tenant-in-common interest decreased from 36 percent to 25 percent.
Series A
Preferred Stock offering
On
February 19, 2020, the Company issued and sold 200,000 shares of 8.0% Series A Cumulative Redeemable Preferred Stock
(“Series A Preferred Stock”) at $23.00 per share. Net proceeds from the issuance were $4,103,500, which includes
the impact of the underwriter’s discounts, selling commissions and legal, accounting and other professional fees. The Company
created an escrow for $371,111 for the first year of dividends, which will be reported as restricted cash on the Company’s
consolidated balance sheet. The Company also incurred $212,896 in other offering costs, including legal, accounting and other fees
associated with this offering. As part of this offering, the Company granted the underwriters a 45-day option to purchase up to
23,000 additional Series A Preferred Stock at the public offering price, less the underwriting discount and commissions, to
cover over-allotments, if any.
Line of
credit, short term extension and repayment
On
February 20, 2020, the Company repaid the line of credit, short term in the amount of $2,000,000 plus accrued interest of
$21,437. Effective on February 21, 2020, the original maturity date of the line of credit, short term, the Company extended
the line of credit, short term for 60 days. On March 3, 2020 the Company received $550,000 in funding from the line of credit,
short term to fund working capital and dividend payments.
Related
party notes payable, short term repayment
On
February 20, 2020, the Company repaid the related party notes payable, short term, in the principal amount of $852,000 plus
accrued interest of $11,710.
Dividend payment
On March 10, 2020,
the Company paid a dividend in the amount of $0.125 per share to common shareholders of record on February 11, 2020.
Medalist Diversified REIT, Inc. and Subsidiaries
Schedule III - Real Estate Properties and Accumulated Depreciation
December 31, 2019
|
|
|
|
Initial Cost to Company
|
|
|
|
|
|
|
|
Gross Amount at Which Carried at Close of
Period
|
|
|
|
|
|
|
|
|
Description
|
|
Encum-
brances
|
|
Land
|
|
Buildings,
Improvements
and Furniture,
Fixtures &
Equipment
|
|
Costs
Capitalized
Subsequent to
Acquisition
|
|
Costs Written
Off Due to
Impairment
and Loss on
Disposition
|
|
Fully
Amortized
Improvements
|
|
Land
|
|
Buildings and
Improvements
|
|
Total
|
|
Accumulated
Depreciation
|
|
Date of
Construction
|
|
Date Acquired
|
|
Life on Which Depreciation in
Latest Income Statements is
Computed
|
Retail properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Shops at Franklin Square
|
|
$
|
14,275,000
|
|
$
|
3,343,164
|
|
$
|
15,418,158
|
(1)
|
$
|
768,524
|
|
$
|
(54,478
|
)
|
$
|
(7,742
|
)
|
$
|
3,343,164
|
|
$
|
16,124,462
|
|
$
|
19,467,626
|
|
$
|
1,646,374
|
|
2006
|
|
April 28, 2017
|
|
Building - 38 years
|
Gastonia, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 13 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanover North Shopping Center
|
|
|
8,592,195
|
|
|
3,158,882
|
|
|
8,334,478
|
(1)
|
|
8,713
|
|
|
-
|
|
|
-
|
|
|
3,158,882
|
|
|
8,343,191
|
|
|
11,502,073
|
|
|
572,300
|
|
2007
|
|
May 8, 2018
|
|
Building - 39 years
|
Mechanicsville, Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 12 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashley Plaza Shopping Center
|
|
|
11,400,000
|
|
|
3,007,721
|
|
|
11,191,307
|
|
|
18,736
|
|
|
-
|
|
|
-
|
|
|
3,007,721
|
|
|
11,210,043
|
|
|
14,217,764
|
|
|
200,544
|
|
1977
|
|
August 30, 2019
|
|
Building - 26.7 years
|
Goldsboro, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail properties
|
|
|
34,267,195
|
|
|
9,509,767
|
|
|
34,943,943
|
|
|
795,973
|
|
|
(54,478
|
)
|
|
(7,742
|
)
|
|
9,509,767
|
|
|
35,677,696
|
|
|
45,187,463
|
|
|
2,419,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro Airport Hampton Inn
|
|
|
10,600,000
|
|
|
960,900
|
|
|
14,798,479
|
|
|
3,060,170
|
|
|
(1,475,779
|
)(2)
|
|
-
|
|
|
960,900
|
|
|
16,382,870
|
|
|
17,343,770
|
|
|
884,281
|
|
1996
|
|
November 3, 2017
|
|
Building - 51 years
|
Greensboro, North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson Best Western Inn
|
|
|
7,750,000
|
|
|
2,057,706
|
|
|
8,271,247
|
|
|
4,860
|
|
|
-
|
|
|
-
|
|
|
2,057,706
|
|
|
8,276,107
|
|
|
10,333,813
|
|
|
143,603
|
|
1982
|
|
September 27, 2019
|
|
Building - 30 years
|
Clemson, South Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 6.4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotel properties
|
|
$
|
18,350,000
|
|
$
|
3,018,606
|
|
$
|
23,069,726
|
|
$
|
3,065,030
|
|
$
|
(1,475,779
|
)
|
$
|
-
|
|
$
|
3,018,606
|
|
$
|
24,658,977
|
|
$
|
27,677,583
|
|
$
|
1,027,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookfield Center
|
|
|
4,850,000
|
|
|
714,220
|
|
|
5,693,147
|
|
|
30,066
|
|
|
-
|
|
|
-
|
|
|
714,220
|
|
|
5,723,213
|
|
|
6,437,433
|
|
|
63,552
|
|
2007
|
|
October 3, 2019
|
|
Building - 40 years
|
Greenville, South Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site Improvements - 4.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment properties
|
|
$
|
57,467,195
|
|
$
|
13,242,593
|
|
$
|
63,706,816
|
|
$
|
3,891,069
|
|
$
|
(1,530,257
|
)
|
$
|
(7,742
|
)
|
$
|
13,242,593
|
|
$
|
66,059,886
|
|
$
|
79,302,479
|
|
$
|
3,510,654
|
|
|
|
|
|
|
(1) Excludes intangible assets
|
(2) Net of accumulated depreciation
|
|
|
Franklin
|
|
|
Hanover
|
|
|
Hampton
|
|
|
Ashley
|
|
|
Clemson
|
|
|
Brookfield
|
|
|
|
|
|
|
Square
|
|
|
Square
|
|
|
Inn
|
|
|
Plaza
|
|
|
Best Western
|
|
|
Center
|
|
|
Total
|
|
Investments in real estate - 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period - January 1, 2019
|
|
$
|
19,391,848
|
|
|
$
|
11,499,475
|
|
|
$
|
16,399,910
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,291,233
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,199,028
|
|
|
|
10,328,953
|
|
|
|
6,407,367
|
|
|
|
30,935,348
|
|
Capitalized leasing commissions
|
|
|
5,075
|
|
|
|
2,598
|
|
|
|
-
|
|
|
|
18,736
|
|
|
|
-
|
|
|
|
30,066
|
|
|
|
56,475
|
|
Capitalized tenant improvements
|
|
|
31,284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,284
|
|
Capitalized tenant inducements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Building and site improvements
|
|
|
47,161
|
|
|
|
-
|
|
|
|
1,375,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,422,598
|
|
Impairment write-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,475,779
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,475,779
|
)
|
Fully amortized tenant improvements
|
|
|
(7,742
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,742
|
)
|
Furniture, Fixtures and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
1,044,202
|
|
|
|
-
|
|
|
|
4,860
|
|
|
|
-
|
|
|
|
1,049,062
|
|
Balance at end of period - December 31,
2019
|
|
$
|
19,467,626
|
|
|
$
|
11,502,073
|
|
|
$
|
17,343,770
|
|
|
$
|
14,217,764
|
|
|
$
|
10,333,813
|
|
|
$
|
6,437,433
|
|
|
$
|
79,302,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation - 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,006,272
|
|
|
$
|
229,238
|
|
|
$
|
732,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,967,736
|
|
Additions charged to costs and expenses
|
|
|
640,102
|
|
|
|
343,062
|
|
|
|
643,979
|
|
|
|
200,544
|
|
|
|
143,603
|
|
|
|
63,552
|
|
|
|
2,034,842
|
|
Impairment write-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(491,924
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(491,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,646,374
|
|
|
$
|
572,300
|
|
|
$
|
884,281
|
|
|
$
|
200,544
|
|
|
$
|
143,603
|
|
|
$
|
63,552
|
|
|
$
|
3,510,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in real estate - December 31,
2019
|
|
$
|
17,821,252
|
|
|
$
|
10,929,773
|
|
|
$
|
16,459,489
|
|
|
$
|
14,017,220
|
|
|
$
|
10,190,210
|
|
|
$
|
6,373,881
|
|
|
$
|
75,791,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate - 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period - January 1, 2018
|
|
$
|
18,959,453
|
|
|
$
|
-
|
|
|
$
|
15,769,254
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,728,707
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
11,493,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,493,360
|
|
Capitalized leasing commissions
|
|
|
299,533
|
|
|
|
6,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
305,648
|
|
Capitalized tenant improvements
|
|
|
62,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,340
|
|
Capitalized tenant inducements
|
|
|
125,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
Building and site improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Building improvements - construction in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
575,830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
575,830
|
|
Impairment write-offs
|
|
|
(54,478
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(54,478
|
)
|
Furniture, Fixtures and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
54,826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,826
|
|
Balance at end of period - December 31, 2018
|
|
$
|
19,391,848
|
|
|
$
|
11,499,475
|
|
|
$
|
16,399,910
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,291,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation - 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
394,746
|
|
|
$
|
-
|
|
|
$
|
104,073
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
498,819
|
|
Additions charged to costs and expenses
|
|
|
615,599
|
|
|
|
229,238
|
|
|
|
628,153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,472,990
|
|
Impairment write-offs
|
|
|
(4,073
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,006,272
|
|
|
$
|
229,238
|
|
|
$
|
732,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,967,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in real estate - December 31,
2018
|
|
$
|
18,385,576
|
|
|
$
|
11,270,237
|
|
|
$
|
15,667,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,323,497
|
|