v3.10.0.1

DEBT

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 6. DEBT

Mortgage Notes Payable

As of June 30, 2018 and December 31, 2017, the Company’s mortgage notes payable consisted of the following:

		June 30, 2018												December 31, 2017
Collateral		Principal ‎Amount				Deferred ‎Loan Costs, ‎Net				Net ‎Balance				Principal ‎Amount				Deferred ‎Loan ‎Costs, ‎Net				Net ‎Balance				Contractual ‎Interest ‎Rate (1)				Effective Interest Rate (1)				Loan ‎Maturity
Accredo/Walgreen properties		$	7,065,895			$	(107,771	)		$	6,958,124			$	7,133,966			$	(124,763	)		$	7,009,203				3.95	%			3.95	%		7/1/2021
Dana property			4,671,294				(113,139	)			4,558,155				4,709,889				(125,132	)			4,584,757				4.56	%			4.56	%		4/1/2023
Six Dollar General properties			3,916,681				(135,993	)			3,780,688				3,951,846				(153,290	)			3,798,556				4.69	%			4.69	%		4/1/2022
Wyndham property (2)			5,871,600				(104,096	)			5,767,504				5,920,800				(109,936	)			5,810,864				One-month ‎LIBOR+2.05	%			4.34	%		6/5/2027
Williams Sonoma property (2)			4,658,400				(77,067	)			4,581,333				4,699,200				(85,227	)			4,613,973				One-month ‎LIBOR+2.05	%			4.05	%		6/5/2022
Omnicare property			4,386,906				(159,155	)			4,227,751				4,423,574				(169,372	)			4,254,202				4.36	%			4.36	%		5/1/2026
Harley property			6,926,045				(185,658	)			6,740,387				6,983,418				(200,811	)			6,782,607				4.25	%			4.25	%		9/1/2024
Northrop Grumman property			5,877,911				(183,229	)			5,694,682				5,945,655				(217,584	)			5,728,071				4.40	%			4.40	%		3/2/2021
EMCOR property			2,935,147				(77,682	)			2,857,465				2,955,000				(83,743	)			2,871,257				4.35	%			4.35	%		12/1/2024
exp US Services property			3,475,886				(131,916	)			3,343,970				3,505,061				(140,382	)			3,364,679				(4	)			4.25	%		11/17/2024
Husqvarna property			6,380,000				(201,883	)			6,178,117				—				—				—				(5	)			4.60	%		2/20/2028
AvAir property (3)			14,575,000				(349,657	)			14,225,343				12,000,000				(330,866	)			11,669,134				(6	)			4.84	%		3/27/2028
3M property			8,360,000				(139,889	)			8,220,111				—				—				—				One-month ‎LIBOR+2.25	%			5.09	%		3/29/2023
Cummins property			8,530,000				(162,175	)			8,367,825				—				—				—				One-month ‎LIBOR+2.25	%			5.16	%		4/4/2023
		$	87,630,765			$	(2,129,310	)		$	85,501,455			$	62,228,409			$	(1,741,106	)		$	60,487,303

	(1)	Contractual interest rate represents the interest rate in effect under the mortgage note payable as of June 30, 2018. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2018 (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 7).
	(2)	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%.
	(3)	On March 27, 2018, the Company refinanced the mortgage loan payable as of December 31, 2017 with a new loan for $14,575,000 through a nonaffiliated lender.  The loan is secured by the AvAir property and it matures on March 27, 2028.
	(4)	The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate is T-Bill index plus 3.25%.
	(5)	The initial contractual interest rate is 4.60% for the first five years and the greater of 4.60% or five-year Treasury Constant Maturity (“TCM”) plus 2.45% for the second five years.
	(6)	The initial contractual interest rate for the note payable outstanding as of June 30, 2018 is 4.84% for the first five-years and the greater of 4.60% or five-year TCM plus 2.45% for the second five-years.

The following were the face value, carrying amount and fair value of the Company’s mortgage notes payable (Level 3 measurement): 

		June 30, 2018												December 31, 2017
		Face Value				Carrying Value				Fair Value				Face value				Carrying Value				Fair Value
Mortgage notes payable		$	87,630,765			$	85,501,455			$	86,757,903			$	62,228,409			$	60,487,303			$	62,363,284

Disclosures of the fair values of financial instruments are based on pertinent information available to the Company as of the period end and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.

Unsecured Credit Facility

On February 28, 2018, the Company, together with the Operating Partnership and Rich Uncles NNN LP, LLC (“Borrowers”), entered into a Business Loan Agreement and Promissory Note (the “Unsecured Credit Facility”) with Pacific Mercantile Bank (“Lender”). The Unsecured Credit Facility replaced the $12,000,000 unsecured line of credit with Lender, which expired on January 26, 2018 (the “Former Credit Facility”). The Unsecured Credit Facility is a revolving unsecured line of credit for a maximum principal amount of $9,000,000 and matures on January 26, 2019, unless earlier terminated.  Under the terms of the Unsecured Credit Facility, Borrowers pay a variable rate of interest on outstanding amounts equal to one (1) percentage point over an independent index published in The Wall Street Journal based on the highest rate on corporate loans posted by at least 75% of the largest banks (the “Index”). Based upon the Index as of the date of the Unsecured Credit Facility, the initial interest rate under the Unsecured Credit Facility was 5.50% and is currently 6.0%.

The Unsecured Credit Facility contains customary representations, warranties and covenants, which are substantially similar to those in the Former Credit Facility. The Company’s ability to borrow under the Unsecured Credit Facility will be subject to its ongoing compliance with various affirmative and negative covenants, including with respect to indebtedness, guaranties, mergers and asset sales, liens, dividends, corporate existence and financial reporting obligations.

The Unsecured Credit Facility also contains customary events of default, including, without limitation, nonpayment of principal, interest, fees or other amounts when due, violation of covenants, breaches of representations or warranties and change of ownership. Upon the occurrence of an event of default, Lender may accelerate the repayment of amounts outstanding under the Unsecured Credit Facility and exercise other remedies subject, in certain instances, to the expiration of an applicable cure period.

The Unsecured Credit Facility is secured by guaranties executed by Raymond E. Wirta, Chairman of the Board of the Company, a trust belonging to Mr. Wirta, Harold C. Hofer, President and Chief Executive Officer of the Company, and a trust belonging to Mr. Hofer, each in the amount of $9,000,000. Such guaranties become effective upon certain triggering events, including an event of default under the Unsecured Credit Facility and the failure by Borrowers to pay one or more subsequent advances within 90 days of disbursement.

As of June 30, 2018, the Unsecured Credit Facility had no outstanding borrowings; however, on July 27, 2018, the Company borrowed the full $9,000,000 to fund the acquisition of the 24 Hour Fitness property in Las Vegas, Nevada, as more fully described in Note 10. As of December 31, 2017, the Former Credit Facility had total outstanding borrowings of $12,000,000.

All Debt Agreements

Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the Unsecured Credit Facility, the Company and/or the Borrowers are subject to certain financial loan covenants. The Company and/or the Borrowers were in compliance with all terms and conditions of the applicable loan agreements as of June 30, 2018.

The following summarizes the future principal repayment of the Company’s mortgage notes payable and Unsecured Credit Facility as of June 30, 2018:

		Mortgage Note Payable				Unsecured Credit Facility (1)				Total
July through December 2018		$	453,113			$	—			$	453,113
2019			1,109,940				—				1,109,940
2020			1,365,278				—				1,365,278
2021			8,055,564				—				8,055,564
2022			14,432,812				—				14,432,812
2023			21,031,341				—				21,031,341
Thereafter			41,182,717				—				41,182,717
Total principal		$	87,630,765			$	—			$	87,630,765

(1) Any outstanding borrowings under the Unsecured Credit Facility will be due by January 26, 2019 unless the facility is extended.

Interest Expense

The following is a reconciliation of the components of interest expense for the three and six months ended June 30, 2018 and 2017:

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Mortgage notes payable
Interest expense		$	1,006,398			$	184,179			$	1,829,658			$	265,837
Amortization of deferred financing costs			98,648				24,998				505,535				35,386
Unrealized (gain) loss on interest rate swaps (see Note 7)			6,235				104,633				(220,571	)			104,633
Unsecured credit facility
Interest expense			83,408				103,877				166,397				143,031
Amortization of deferred financing costs			8,571				481				12,857				1,118
Forfeited loan fee			—				20,000				—				20,000
Total interest expense		$	1,203,260			$	438,168			$	2,293,876			$	570,005

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- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI http://asc.fasb.org/topic&trid=2208564

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