HARTMAN COMMERCIAL PROPERTIES REIT - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number

000-50256

HARTMAN COMMERCIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

76-0594970
(IRS Employer
Identification No.)

1450 W. Sam Houston Parkway N., Suite 100
Houston, Texas 77057
(Address of principal executive offices)

Registrant’s telephone number, including area code: (713) 467-2222

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes S No ¨

Indicated by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No S

The number of the registrant’s Common Shares of Beneficial Interest outstanding at August 13, 2004 was 7,010,146.


		Page

PART I--FINANCIAL INFORMATION

Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003	2
	Consolidated Statements of Income for the Three Months Ended
	and Six Months Ended June 30, 2004 and 2003 (unaudited)	4
	Consolidated Statements of Changes in Shareholders' Equity for the Six Months
	Ended June 30, 2004 (unaudited) and for the Year Ended December 31, 2003	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and
	2003 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32

PART II--OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 5.	Other Information	33
Item 6.	Exhibits and Reports on Form 8-K	33
Signature Certifications		35

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Hartman Commercial Properties REIT and Subsidiary

Consolidated Balance Sheets

	June 30, 2004		December 31,2003
	(Unaudited)
Assets

Real estate
Land	$	26,664,999	$		26,664,999
Buildings and improvements	105,863,155		105,055,635
	132,528,154		131,720,634
Less accumulated depreciation	(13,381,989)		(11,464,280)
Real estate, net	119,146,165		120,256,354

Cash and cash equivalents	641,857		578,687

Investment in real estate held for sale	716,551		-

Escrows and acquisition deposits	2,674,235		3,188,649

Note receivable	671,393		687,003

Receivables
Accounts receivable, net of allowance for doubtful
accounts of $375,625 and $350,750 as of June 30, 2004
and December 31, 2003, respectively	675,747		526,855
Accrued rent receivable	2,172,151		1,963,214
Due from affiliates	3,711,865		3,679,602

Receivables, net	6,559,763		6,169,671

Deferred costs, net	2,904,392		3,039,661

Prepaid expenses and other assets	276,433		146,366

Total assets	$	133,590,789	$	134,066,391

See notes to consolidated financial statements.
2


	June 30, 2004		December 31, 2003
	(Unaudited)
Liabilities and Shareholders’ Equity

Liabilities
Notes payable	$	49,042,069	$	47,343,182
Accounts payable and accrued expenses	2,321,993		3,324,461
Due to affiliates	746,076		757,451
Tenants’ security deposits	1,051,239		1,061,209
Prepaid rent	419,728		453,421
Dividends payable	1,226,777		1,226,777
Other liabilities	1,016,460		1,016,460

Total liabilities	55,824,342		55,182,961

Minority interests of unit holders in Operating Partnership;
5,808,337 units at June 30, 2004
and December 31, 2003	37,015,821		37,567,446

Minority interests in real estate held for sale	192,557		-

Commitments and contingencies	-		-

Shareholders’ equity
Preferred shares, $0.001 par value per share; 50,000,000
shares authorized; none issued and outstanding
at June 30, 2004 and December 31, 2003	-		-
Common shares, $0.001 par value per share; 400,000,000
shares authorized; 7,010,146 issued and outstanding at
June 30, 2004 and December 31, 2003	7,010		7,010
Additional paid-in capital	45,527,152		45,527,152
Accumulated deficit	(4,976,093)		(4,218,178)

Total shareholders’ equity	40,558,069		41,315,984

Total liabilities and shareholders’ equity	$	133,590,789	$	134,066,391

See notes to consolidated financial statements.
3

Hartman Commercial Properties REIT and Subsidiary

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004		2003

Revenues
Rental income	$	4,565,064		$	4,491,223	$	8,996,915	$	8,638,068
Tenants’ reimbursements	1,364,276			827,364		2,281,976		2,081,988
Interest and other income	166,402			167,030		303,277		302,700

Total revenues	6,095,742			5,485,617		11,582,168		11,022,756

Expenses
Operation and maintenance	746,759			700,588		1,438,173		1,304,380
Interest expense	581,295			331,304		1,149,845		668,823
Real estate taxes	666,986			186,150		1,337,706		840,232
Insurance	111,011			130,802		238,819		240,506
Electricity, water and gas utilities	194,055			200,591		379,921		390,803
Management and partnership
management fees to an affiliate	345,807			315,319		669,945		658,128
General and administrative	296,211			338,250		649,539		619,811
Depreciation	970,700			938,865		1,917,709		1,858,876
Amortization	311,391			248,862		598,702		485,672
Bad debt expense	79,400			127,725		24,875		284,000

Total operating expenses	4,303,615			3,518,456		8,405,234		7,351,231

Income before minority interests	1,792,127			1,967,161		3,176,934		3,671,525

Minority interests in Operating Partnership	(835,606)			(917,156)		(1,481,295)		(1,711,818)

Net income	$		956,521	$	1,050,005	$	1,695,639	$	1,959,707

Net income per common share	$		0.136	$	0.150	$	0.242	$	0.280

Weighted-average shares outstanding	7,010,146			7,010,146		7,010,146		7,010,146

See notes to consolidated financial statements.
4

Hartman Commercial Properties REIT and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount

Balance, December 31, 2002	7,010,146	$	7,010	$	45,527,152	$	(2,785,244)	$	42,748,918
Net income	-	-		-		3,474,174		3,474,174
Dividends	-	-		-		(4,907,108)		(4,907,108)
Balance, December 31, 2003	7,010,146	7,010		45,527,152		(4,218,178)		41,315,984
Net income	-	-		-		1,695,639		1,695,639
Dividends	-	-		-		(2,453,554)		(2,453,554)
Balance, June 30, 2004	7,010,146	$	7,010	$	45,527,152	$	(4,976,093)	$	40,558,069

See notes to consolidated financial statements.
5

Hartman Commercial Properties REIT and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2004		2003
Cash flows from operating activities:
Net income	$	1,695,639	$	1,959,707
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation	1,917,709		1,858,876
Amortization	598,702		485,672
Minority interests in Operating Partnership	1,481,295		1,711,818
Bad debt expense	24,875		284,000
Changes in operating assets and liabilities:
Escrows and acquisition deposits	514,414		637,894
Receivables	(382,704)		(570,928)
Due from affiliates	(43,638)		(631,025)
Deferred costs	(431,542)		(578,941)
Prepaid expenses and other assets	169,711		238,597
Accounts payable and accrued expenses	(1,002,468)		(1,250,243)
Tenants’ security deposits	(9,970)		(10,616)
Prepaid rent	(33,693)		131,002

Net cash provided by
operating activities	4,498,330		4,265,813

Cash flows used in investing activities:
Additions to real estate	(807,520)		(933,916)
Investment in real estate partnership	(9,233,555)		—
Distributions received from real estate partnership	8,709,561		—
Issuance of note receivable	—		(285,918)
Repayment of note receivable	15,610		—

Net cash used in investing activities	(1,315,904)		(933,916)

Cash flows from financing activities:
Dividends paid	(2,453,554)		(2,453,554)
Distributions paid to OP unit holders	(2,032,920)		(2,032,920)
Proceeds from notes payable	10,356,818		—
Repayments of notes payable	(8,957,709)		(3,534,405)
Payments of loan origination costs	(31,891)		—

Net cash used in
financing activities	(3,119,256)		(8,020,879)

Net increase (decrease) in cash
and cash equivalents	63,170		(4,974,900)

Cash and cash equivalents at beginning of period	578,687		6,091,699