INVESTMENTS IN UNCONSOLIDATED ENTITIES

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Cost and Equity Method Investments Disclosure [Text Block]

NOTE 5. INVESTMENTS IN UNCONSOLIDATED ENTITIES

The Company’s investments in unconsolidated entities are as follows:

	June 30, 2018		December 31, 2017
Santa Clara Property Tenant-in-Common Interest (“TIC Interest”)	$	10,907,699	$	11,103,547
Rich Uncles Real Estate Investment Trust I (“REIT I”)		3,256,641		3,420,475
	$	14,164,340	$	14,524,022

The Company’s (loss) income from investments in unconsolidated entities is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
REIT I	$	(32,301	)	$	159,399	$	(27,202	)	$	167,356
TIC Interest		70,907			—		120,687			—
	$	38,606		$	159,399	$	93,485		$	167,356

TIC Interest

On September 28, 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an approximate 72.7% TIC Interest in the Santa Clara property. The remaining approximate 27.3% of undivided interests in the Santa Clara property are held by Hagg Lane II, LLC (an approximate 23.4% interest) and Hagg Lane III, LLC (an approximate 3.9% interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC is a board member of the Sponsor. The Santa Clara property does not qualify as a variable interest entity and consolidation is not required as the Company’s TIC Interest does not control the property. Therefore, the Company accounts for its TIC Interest in the Santa Clara property using the equity method. The Company receives approximately 72.7% of the cash flow distributions and recognizes approximately 72.7% of the results of operations. During the three and six months ended June 30, 2018, the Company received $68,316 and $136,632 in cash distributions, respectively.

The following is summarized financial information for the Santa Clara property:

	June 30, 2018		December 31, 2017
Assets:
Real estate investments, net	$	32,164,572	$	32,587,034
Cash and cash equivalents		273,589		615,436
Other assets		244,756		103,700
Total assets	$	32,682,917	$	33,306,170
Liabilities:
Mortgage notes payable	$	14,114,248	$	14,235,256
Below-market lease, net		3,178,988		3,247,480
Other liabilities		81,687		246,085
Total liabilities		17,374,923		17,728,821
Total equity		15,307,994		15,577,349
Total liabilities and equity	$	32,682,917	$	33,306,170

	Three Months Ended June 30, 2018 (1)		Six Months Ended June 30, 2018 (1)
Total revenues	$	713,218	$	1,322,012
Expenses:
Interest expense		145,960		290,985
Depreciation and amortization		248,136		495,349
Other expenses		223,358		369,694
Total expenses		617,454		1,156,028
Net income	$	95,764	$	165,984


	(1)	The Company’s TIC Interest in the Santa Clara property commenced on September 28, 2017; therefore, no Santa Clara property operating results are presented for the three and six months ended June 30, 2017.

REIT I

The Company’s investment in REIT I represented an approximate 4.3% and 4.4% ownership interest as of June 30, 2018 and December 31, 2017, respectively. The Company recorded its share of income (losses) of REIT I based on REIT I’s results of operations for the three and six months ended June 30, 2018. During the three and six months ended June 30, 2018, the Company received $68,316 and $136,632 in cash dividends, respectively, related to its investment in REIT I. The following is summarized financial information for REIT I:

	June 30, 2018		December 31, 2017
Assets:
Real estate investments, net	$	127,870,774	$	131,166,670
Cash and cash equivalents and restricted cash		4,606,282		6,027,807
Other assets		3,083,486		2,658,777
Total assets	$	135,560,542	$	139,853,254
Liabilities:
Mortgage notes payable, net	$	61,839,052	$	62,277,387
Below-market lease intangibles, net		3,535,926		3,966,008
Other liabilities		3,644,436		2,937,247
Total liabilities		69,019,414		69,180,642
Redeemable common stock		224,035		586,242
Total shareholders’ equity		66,317,093		70,086,370
Total liabilities and shareholders’ equity	$	135,560,542	$	139,853,254

	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Total revenues	$	3,365,163		$	3,507,951	$	6,596,381		$	6,234,218
Expenses:
Depreciation and amortization		1,409,093			1,452,354		2,857,337			2,670,428
Interest expense		631,838			761,743		1,116,711			1,222,944
Impairment of real estate investment property (1)		862,190			—		862,190			—
Other expenses		1,206,883			1,104,954		2,386,920			1,757,779
Total expenses		4,110,004			3,319,051		7,223,158			5,651,151
Other income:
Other income		—			748,514		—			748,795
Net (loss) income	$	(744,841	)	$	937,414	$	(626,777	)	$	1,331,862

(1) During the three months ended June 30, 2018, REIT I recorded an impairment charge of $862,190 related to its investment in a property in Antioch, California due to the expiration of the tenant’s lease term at December 31, 2017 and REIT I’s subsequent difficulties encountered during the second quarter in its efforts to re-lease the property at acceptable rent rates and without incurring substantial potential tenant improvement costs. The impairment charge is less than 1% of REIT I’s total investments in real estate property and the book value of the property after the impairment charge is less than 2.0% of REIT I’s total investments in real estate property as of June 30, 2018.