NOTE 5. DEBT

Mortgage Notes Payable

As of September 30, 2017, the Company’s mortgage notes payable consisted of the following:

Collateral	Principal Amount		Deferred Loan Costs, net		Net Balance		Contractual Interest Rate (1)	Effective Interest Rate (1)			Loan Maturity
Accredo/Walgreens properties	$	7,167,501	$	(133,762)	$	7,033,739	3.95%		3.95	%	7/1/2021
Dana property		4,728,857		(131,129)		4,597,728	4.56%		4.56	%	4/1/2023
Six Dollar General properties (2)		3,962,211		(162,403)		3,799,808	4.69%		4.69	%	4/1/2022
Wyndham property (3)		5,945,400		(112,374)		5,833,026	One-month LIBOR + 2.05%		4.34	%	6/5/2027
Williams Sonoma property (3)		4,719,600		(90,057)		4,629,543	One-month LIBOR + 2.05%		4.05	%	6/5/2022
Omnicare property		4,440,000		(174,480)		4,265,520	4.36%		4.36	%	6/1/2022
Harley property		7,010,000		(207,598)		6,802,402	4.25%		4.25	%	9/1/2024
Northrop Grumman property		5,978,965		(234,763)		5,744,202	4.40%		4.40	%	3/2/2021
	$	43,952,534	$	(1,246,566)	$	42,705,968

(1)

Contractual interest rate represents the interest rate in effect under the mortgage note payable as of September 30, 2017. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of the interest rate swap, if applicable). For further information regarding the Company’s derivative instruments, see Note 6.

(2)

For the three and nine-months ended September 30, 2017, the loan was cross-collateralized with all six Dollar General properties owned by the Company and one Dollar General property owned by REIT I. As of September 30, 2017, the deeds of trust for the Company’s six Dollar General properties and the deed of trust for the REIT I Dollar General property contained cross-collateralization and cross default provisions. At September 30, 2017, the outstanding principal balance of the loan on REIT I’s one Dollar General property was $634,046. The cross-collateralization was removed on October 13, 2017.

(3)

The loans on each of the Williams Sonoma and Wyndham properties (collectively, the “Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The loans are collateralized by a deed of trust and a security agreement with assignment of rents and fixture filing. In addition, the individual loans are subject to a cross collateralization and cross default agreement whereby any default under, or failure to comply with the terms of any one or both of the loans is an event of default under the terms of both loans. The value of the Property must be in an amount sufficient to maintain a loan to value ratio of no more than 60%. If the loan to value ratio is ever more than 60%, the borrower shall, upon the Bank’s written demand, reduce the principal balance of the loans so that the loan to value ratio is no more than 60%.

Unsecured Credit Facility

On June 7, 2016, the Operating Partnership (“Borrower”) entered into a credit agreement (the “Unsecured Credit Agreement”) with Pacific Mercantile Bank (“Lender”). Pursuant to the Unsecured Credit Agreement, the Borrower has a $12,000,000 unsecured credit facility with an interest rate equal to 1% over an independent index, that is the highest rate on corporate loans posted by at least 75% of the thirty (30) largest banks in the United States, known as The Wall Street Journal Prime Rate, as published in the Wall Street Journal. Payments under the Unsecured Credit Agreement are interest only and are due on the 15^th day of each month. The Unsecured Credit Agreement initially had a maturity date of June 15, 2017. On May 12, 2017, the maturity date of the Unsecured Credit Agreement was extended to October 28, 2017. On October 4, 2017, the maturity date of the unsecured credit agreement was extended to January 26, 2018. The effective interest rate for borrowings under the Unsecured Credit Agreement during the nine months ended September 30, 2017 was 5.12%.

The Unsecured Credit Agreement is guaranteed in the amount of $12,000,000 by the Company, Rich Uncles NNN LP, LLC, Harold Hofer, Howard Makler and Ray Wirta and trusts affiliated with the aforementioned individuals. The guarantees are to be released once the Company has book equity of $60,000,000.

We are negotiating the extension of the maturity date of the Unsecured Credit Agreement and we expect to complete this process prior to its current January 26, 2018 maturity date.

All Debt Agreements

Pursuant to the terms of the mortgage notes payable and the Unsecured Credit Agreement, the Company and/or the Operating Partnership are subject to certain financial loan covenants. The Company and/or the Operating Partnership was in compliance with all financial covenants of these loan agreement as of September 30, 2017.

The following summarizes the future principal repayment of the Company’s mortgage notes payable and unsecured credit facility as of September 30, 2017:

	Mortgage Note Payable		Unsecured Credit Facility		Total
Remaining 2017	$	190,909	$	7,119,739	$	7,310,648
2018	$	793,487		-		793,487
2019	$	828,346		-		828,346
2020	$	861,835		-		861,835
2021	$	7,452,683		-		7,452,683
2022	$	13,789,779		-		13,789,779
2023	$	20,035,495		-		20,035,495
Total Principal		43,952,534		7,119,739		51,072,273
Deferred financing costs, net		(1,246,566)		-		(1,246,566)
Total Principal	$	42,705,968	$	7,119,739	$	49,825,707

The following is a reconciliation of the components of interest expense for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30				Nine Months Ended September 30
	2017		2016		2017		2016
Mortgage notes payable
Interest expense (1)	$	401,174	$	48,153	$	667,011	$	58,742
Amortization of deferred financing costs		53,141		8,689		88,526		9,845
Unrealized loss (gain) on interest rate swaps (see Note 6)		(4,627)		-		100,006		-
Unsecured credit facility
Interest expense		81,594		115,707		224,626		144,582
Amortization of deferred financing costs		-		762		1,118		792
Forfeited loan fee		10,000		960		30,000		960
Total interest expense	$	541,282	$	174,271	$	1,111,287	$	214,921

(1)

Includes $20,831 for the three and nine months ended September 30, 2017, respectively, of monthly payments to settle the Company’s interest rate swaps. Accrued interest payable of $7,172 at September 30, 2017 represented the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through September 30, 2017. The Company had no swap agreements as of September 30, 2016.