Quarterly report pursuant to Section 13 or 15(d)

REAL ESTATE

v3.5.0.2
REAL ESTATE
9 Months Ended
Sep. 30, 2016
Real Estate [Abstract]  
Real Estate Disclosure [Text Block]
NOTE 3. REAL ESTATE
 
As of September 30, 2016, the Company’s real estate portfolio consisted of two properties in two states consisting of retail and office properties. The following table provides summary information regarding the Company’s real estate as of September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
Tenant
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
origination
 
Accumulated
 
Total real
 
 
 
 
 
 
 
 
 
Land,
 
and
 
depreciation
 
estate
 
 
 
 
 
Acquisition
 
Property
 
building and
 
absorption
 
and
 
investments,
 
Property
 
Location
 
Date
 
type
 
improvements
 
costs
 
amortization
 
net
 
Accredo
 
Orlando, FL
 
6/15/2016
 
Office
 
$
9,656,862
 
$
1,053,638
 
$
(142,578)
 
$
10,567,922
 
Walgreens
 
Stockbridge, GA
 
6/21/2016
 
Retail
 
 
4,147,948
 
 
705,423
 
 
(95,654)
 
 
4,757,717
 
 
 
 
 
 
 
 
 
$
13,804,810
 
$
1,759,061
 
$
(238,232)
 
$
15,325,639
 
 
Current Period Acquisitions
 
During the nine months ended September 30, 2016, the Company acquired the following properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
origination
 
 
 
 
 
 
 
 
 
 
 
Buildings
 
Above-
 
and
 
 
 
 
 
 
 
Acquisition
 
 
 
and
 
market
 
absorption
 
 
 
Property
 
Location
 
Date
 
Land
 
Improvements
 
lease
 
costs
 
Total
 
Accredo
 
Orlando, FL
 
6/15/2016
 
$
1,706,640
 
$
7,950,222
 
$
–
 
$
1,053,638
 
$
10,710,500
 
Walgreens
 
Stockbridge, GA
 
6/21/2016
 
 
1,033,104
 
 
3,114,844
 
 
166,629
 
 
705,423
 
 
5,020,000
 
 
 
 
 
 
 
$
2,739,744
 
$
11,065,066
 
$
166,629
 
$
1,759,061
 
$
15,730,500
 
 
The intangible assets acquired in connection with these acquisitions have a weighted average amortization period as of the date of the acquisition of approximately five years. The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date pursuant to ASC 805) that may impact the fair value of the assets and liabilities above (including real estate investments, other assets and accrued liabilities).
 
The Company recorded both acquisitions as business combinations and expensed $0 and $547,149 of acquisition costs related to the acquisition of these properties for the three and nine months ended September 30, 2016, respectively. During the three and nine months ended September 30, 2016, the Company recognized $359,544 and $401,009 of total revenues related to these properties.
 
Operating Leases
 
The Company’s real estate properties are leased to tenants under triple-net leases for which terms and expirations vary. The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies or lease guarantors) that are rated by national recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring new reports and press releases regarding the tenants (or their parent companies or lease guarantors), and their underlying business and industry; and (4) monitoring the timeliness of rent collections.
 
As of September 30, 2016, each of the Company’s tenants is considered to be a major tenant concentration. The Company’s real estate properties are leased to Accredo Health Group, Inc. (“Accredo”) and Walgreen Company (“Walgreens”). The obligations under these two leases are guaranteed by Express Scripts Holding Company for Accredo and Walgreens Boots Alliance for Walgreens. Accredo and Walgreens each lease one of the Company’s real estate properties, which are located in Florida and Georgia, respectively.
 
Express Scripts Holding Company’s financial statements can be found at http://www.express-scripts.com . (NASDAQ: ESRX)
 
Walgreens Boots Alliance’s financial statements can be found at http://www.walgreensbootsalliance.com . (NASDAQ: WBA)
 
The future minimum contractual rent payments are shown in the table below. Both leases on the two properties owned by the Company expire in 2021.
 
 
 
Total
 
October 1, 2016 through December 31, 2016
 
$
308,138
 
2017
 
 
1,246,956
 
2018
 
 
1,273,759
 
2019
 
 
1,301,192
 
2020
 
 
1,329,255
 
2021
 
 
507,433
 
 
 
$
5,966,733
 
 
Intangibles
 
As of September 30, 2016, the Company’s intangibles were as follows:
 
Above-market lease
 
$
166,629
 
Above-market lease - accumulated amortization
 
 
(9,720)
 
Above-market lease, net
 
 
156,909
 
 
 
 
 
 
Tenant origination and absorption costs
 
 
1,759,061
 
Tenant origination and absorption costs - accumulated amortization
 
 
(106,419)
 
Tenant origination and absorption costs, net
 
 
1,652,642
 
Total intangibles
 
$
1,809,551
 
 
The intangible assets are amortized over the respective lease terms, which was approximately five years as of September 30, 2016. Amortization of intangible assets over the next five years is expected to be as follows:
 
 
 
 
 
Tenant
 
 
 
 
 
origination
 
 
 
 
 
and
 
 
 
Above-market
 
absorption
 
 
 
lease
 
costs
 
Remaining 2016 amortization
 
$
8,331
 
$
91,217
 
2017 amortization
 
 
33,326
 
 
364,866
 
2018 amortization
 
 
33,326
 
 
364,866
 
2019 amortization
 
 
33,326
 
 
364,866
 
2020 amortization
 
 
33,326
 
 
364,866
 
2021 amortization
 
 
15,274
 
 
101,961
 
 
 
$
156,909
 
$
1,652,642
 
 
Decreases in net income (loss) as a result of amortization of the Company’s tenant origination and absorption costs for the three and nine months ended September 30, 2016 were $91,760 and $106,419, respectively. Decreases in net income (loss) as a result of amortization of the Company’s above-market lease for the three and nine months ended September 30, 2016 were $8,331 and $9,720, respectively.