Quarterly report pursuant to Section 13 or 15(d)

RELATED PARTY TRANSACTIONS

v3.5.0.2
RELATED PARTY TRANSACTIONS
9 Months Ended
Sep. 30, 2016
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
NOTE 7. RELATED PARTY TRANSACTIONS
 
The Company has entered into an Advisory Agreement with the Advisor. This agreement entitles the Advisor to specified fees upon the provision of certain services with regard to the investment of funds in real estate investments, the management of those investments, among other services, and the disposition of investments, as well as entitles the Advisor to reimbursement of organization and offering costs incurred by the Advisor or Sponsor on behalf of the Company, such as expenses related to the Offering, and certain costs incurred by the Advisor or Sponsor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Sponsor also serves as the sponsor for Rich Uncles REIT I. During the three and nine months ended September 30, 2016, no other business transactions occurred between the Company and Rich Uncles REIT I, other than described below and in Note 4.
 
Pursuant to the terms of these agreements, summarized below are the related party costs incurred by the Company for the three and nine months ended September 30, 2016, for the three months ended September 30, 2015, and for the period May 14, 2015 to September 30, 2015:
 
 
 
 
 
 
 
For the period
 
 
 
Three months ended
 
Nine months ended
 
May 14, 2015 to
 
 
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
 
 
2016
 
2015
 
2016
 
2015
 
 
 
Incurred
 
Incurred
 
Advisor fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees
 
$
–
 
$
–
 
$
474,121
 
$
–
 
Asset management fees (4)
 
 
46,575
 
 
–
 
 
54,141
 
 
–
 
Fees to affiliates
 
$
46,575
 
$
–
 
$
528,262
 
$
–
 
Costs advanced by Sponsor (1)
 
 
–
 
 
–
 
 
–
 
 
1,000
 
Reimbursable organizational and offering expenses (2)
 
 
187,101
 
 
–
 
 
187,101
 
 
6,000
 
Expenses reimbursed/fees waived by Sponsor or affiliates:
 
 
 
 
 
 
 
 
 
 
 
 
 
Expense reimbursement from Sponsor (3)
 
 
(434,332)
 
 
–
 
 
(434,332)
 
 
–
 
Waiver of asset management fees (4)
 
 
(11,798)
 
 
–
 
 
(11,798)
 
 
–
 
 
 
$
(446,130)
 
$
 –
 
$
(446,130)
 
$
 –
 
 
 
$
(212,454)
 
$
–
 
$
269,233
 
$
7,000
 
 
(1)
The Sponsor advanced $1,000 to the Company related to the opening of a bank account, which is reflected in “Due to affiliates” on the consolidated balance sheet.
(2)
As of September 30, 2016, the Sponsor had incurred $1,160,923 of organizational and offering costs on behalf of the Company. However, the Company is only obligated to reimburse the Sponsor for such organizational and offering expenses to the extent of 3% of gross offering proceeds. The payable related to this obligation is reflected in “Due to affiliates” on the consolidated balance sheets.
(3)
The Company records payroll costs related to Company employees that answer questions from prospective shareholders. The Sponsor has agreed to reimburse the Company for these investor relations payroll costs which the Sponsor considers to be offering expenses in accordance with the Advisory Agreement.
(4)
To the extent the Advisor elects, in its sole discretion to defer and waive a portion of the monthly asset management fee, the Advisor may waive up to an amount equal to 0.025% of the total investment value of the Company’s assets.  For the three and nine months ended September 30, 2016, the Advisor waived $11,798 of asset management fees, which are not subject to future recoupment by the Advisor.
    
 
As of September 30, 2016 and December 31, 2015, the Company had net amounts of $8,649 and $7,000 due to the Sponsor and/or its affiliates, respectively.
 
Organization and Offering Costs
 
During the Offering, pursuant to the Advisory Agreement, the Company is obligated to reimburse the Sponsor or its affiliates for organization and offering costs (as defined by the Sponsor) paid by the Sponsor on behalf of the Company. The Company will reimburse the Sponsor for organizational and offering expenses up to 3.0% of gross offering proceeds. The Sponsor and affiliates will be responsible for any organization and offering costs related to the Offering to the extent they exceed 3.0% of gross offering proceeds from the Offering. As of September 30, 2016, the Sponsor has incurred organization and offering expenses in excess of 3.0% of the gross offering proceeds received by the Company. To the extent the Company has more gross offering proceeds from future shareholders, the Company will be obligated to reimburse the Sponsor. As the amount of future gross offering proceeds is uncertain, the amount the Company is obligated to reimburse to the Sponsor is uncertain. Through September 30, 2016, the Sponsor and its affiliates had incurred organization and offering costs on the Company’s behalf in connection with the Offering of $1,160,923. Through September 30, 2016, the Company reimbursed the Sponsor $187,101 in organization and offering costs, which represented the Company’s maximum liability for organization and offering costs through September 30, 2016.
 
Investor relations payroll expense reimbursement from Sponsor
 
The Company has investor personnel that answer potential investor inquiries regarding the Company and/or its prospectus. The payroll expense associated with the investor relations personnel is reimbursed by the Sponsor. The Sponsor considers these payroll costs to be offering expenses. The total amount of such payroll reimbursements were $434,332 and $434,322 for the three and nine months ended September 30, 2016, respectively.
 
Acquisition Fees
 
The Company shall pay the Advisor a fee in the amount equal 3.0% of Company’s Contract Purchase Price of its Properties, as Acquisition Fees. The total of all Acquisition Fees and Acquisition Expenses shall be reasonable, and shall not exceed 6.0% of the contract price of the property.   However, a majority of the directors (including a majority of the independent directors) not otherwise interested in the transaction may approve fees in excess of these limits if they determine the transaction to be commercially competitive, fair and reasonable to the Company.
 
Asset Management Fee
 
The Company shall pay to the Advisor as compensation for the advisory services rendered to the Company, a monthly fee in an amount equal to 0.1% of the Company’s Average Invested Assets, as defined in the Prospectus and Advisory Agreement (the “Asset Management Fee”), as of the end of the preceding month. The Asset Management Fee shall be payable monthly on the last day of such month, or the first business day following the last day of such month. The Asset Management Fee, which must be reasonable in the determination of the Company’s Independent Directors at least annually, may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor. All or any portion of the Asset Management Fee not paid as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.
 
Additionally, to the extent the Advisor elects, in its sole discretion, to defer all or any portion of its monthly asset management fee (which is payable in the amount equal to 0.1% of the total investment value of the Company’s assets), the Advisor will be deemed to have waived, not deferred, that portion of its monthly asset management fee that is up to 0.025% of the total investment value of the Company’s assets. The total amount of asset management fees waived for the three and nine months ended September 30, 2016 was $11,798 and $11,798, respectively.
 
Financing Coordination Fee
 
Other than with respect to any mortgage or other financing related to a property concurrent with its acquisition, if an Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the post-acquisition financing or refinancing of any debt that the Company obtains relative to a Property, then the Company shall pay to the Advisor or such Affiliate a financing coordination fee equal to 1.0% of the amount of such financing.
 
Property Management Fees
 
If an Advisor or an Affiliate provides a substantial amount of the property management services (as determined by a majority of the Independent Directors) for the Company’s Properties, then Company shall pay to the Advisor or such Affiliate a property management fee equal to 1.5% of gross revenues from the properties managed. The Company also will reimburse the Advisor and any of its Affiliates for property-level expenses that such Person pays or incurs on behalf of the Company, including salaries, bonuses and benefits of Persons employed by such Person, except for the salaries, bonuses and benefits of Persons who also serve as one of the Company’s executive officers or as an executive officer of such Person. The Advisor or its Affiliate may subcontract the performance of its property management duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services.
 
Disposition Fees
 
For substantial assistance in connection with the sale of Properties, the Company shall pay to its Advisor or one of its Affiliates 3.0% of the Contract Sales Price of each Property sold; provided, however, that if, in connection with such disposition, commissions are paid to third parties unaffiliated with our advisor or its affiliates, the disposition fees paid to our advisor, our sponsors, their affiliates and unaffiliated third parties may not exceed the lesser of the Competitive Real Estate Commission or 6% of the Contract Sales Price.
 
Leasing Commission Fees
 
If an Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the Company’s leasing of a Property or Properties to unaffiliated third parties, then the Company shall pay to the Advisor or such Affiliate leasing commissions equal to 6.0% of the rents due pursuant to such lease for the first ten years of the lease term; provided, however (i) if the term of the lease is less than ten years, such commission percentage will apply to the full term of the lease and (ii) any rents due under a renewal of a lease of an existing tenant upon expiration of the initial lease agreement (including any extensions provided for thereunder) shall accrue a commission of 3.0% in lieu of the aforementioned 6.0% commission.
 
Operating Expenses
 
Unless its trust managers make a finding, based on non-recurring and unusual factors which they deem sufficient, that a higher level of expenses is justified for a period, the Company will reimburse the Advisor’s costs of providing administrative services, subject to the limitation that the Company will not reimburse the Advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets and (ii) 25% of net income other than any additions to reserves for depreciation, bad debt or other similar noncash reserves and excluding any gain from the sale of assets for that period. In the event that annual operating expenses exceed these limits as of the end of any fiscal quarter (for the 12 months then ended) the board of directors must within 60 days after the end of such quarter inform the shareholders of the factors the board of directors considered in arriving at the conclusion that such higher operating expenses were justified. If the board of directors do not determine the higher expenses were justified for the period, they must cause the Advisor to reimburse the Company to the extent these limitations were exceeded. Additionally, the Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees or disposition fees.
 
Subordinated Participation Fee
 
The Company shall pay to the Advisor or one of its affiliates a subordinated participation fee calculated as of December 31 of each year and paid (if at all) in the immediately following January. The subordinated participation fee is only due if the Preferred Return is achieved and is equal to the sum of:
 
(i)
40% of the product of (a) the difference of (x) the Preliminary NAV per share minus (y) the Highest Prior NAV per share,  multiplied by (b) the number of shares outstanding as of December 31 of the relevant annual period, but only if this results in a positive number, plus
 
 
(ii)
40% of the product of: (a) the amount by which aggregate cash distributions to stockholders during the annual period, excluding return of capital distributions, divided by the weighted average number of shares outstanding for the annual period, exceed the Preferred Return, multiplied by (b) the weighted average number of shares outstanding for the annual period calculated on a monthly basis.
 
First revaluation of NAV is scheduled to occur at December 31, 2016.