Attached files
file | filename |
---|---|
EX-32 - EXHIBIT 32 - Sentio Healthcare Properties Inc | ex32.htm |
EX-31.1 - EXHIBIT 31.1 - Sentio Healthcare Properties Inc | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - Sentio Healthcare Properties Inc | ex31_2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
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 333-139704
CORNERSTONE
GROWTH & INCOME REIT, INC.
(Exact
name of registrant as specified in its charter)
MARYLAND
|
20-5721212
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
1920
MAIN STREET, SUITE 400, IRVINE, CA
|
92614
|
(Address
of principal executive offices)
|
(Zip
Code)
|
949-852-1007
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the 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.
x Yes o No
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act.
Large
accelerated filer £
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company S
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes x No
As of
November 12, 2009, there were 4,255,789 shares of common stock of Cornerstone
Growth & Income REIT, Inc. outstanding.
1
PART I - FINANCIAL INFORMATION
FORM
10-Q
Cornerstone
Growth & Income REIT, Inc.
TABLE
OF CONTENTS
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial Statements:
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
|
Item
2.
|
20
|
|
|
|
|
Item
3.
|
24
|
|
|
|
|
Item
4.
|
24
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
25
|
|
|
|
Item
1A.
|
25
|
|
|
|
|
Item
2.
|
25
|
|
|
|
|
Item
6.
|
25
|
|
|
|
|
26
|
CORNERSTONE GROWTH & INCOME REIT, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
September 30,
2009
|
|
|
December 31,
2008
|
|
|||
ASSETS
|
|
|
|
|
|
|
||
Cash
and cash equivalents
|
|
$
|
18,695,000
|
|
|
$
|
7,449,000
|
|
Investments
in real estate
|
|
|
|
|
|
|
|
|
Land
|
|
|
4,647,000
|
|
|
|
—
|
|
Buildings,
improvements and equipment, net
|
|
|
16,596,000
|
|
|
|
—
|
|
Furniture
and fixtures, net
|
|
|
338,000
|
|
|
|
—
|
|
Intangible
lease assets, net
|
|
|
1,524,000
|
|
|
|
—
|
|
|
|
23,105,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
costs and deposits
|
|
|
12,000
|
|
|
|
385,000
|
|
Deferred
financing costs, net
|
|
|
67,000
|
|
|
|
41,000
|
|
Tenant
and other receivable
|
|
|
133,000
|
|
|
|
10,000
|
|
Prepaid
expenses
|
|
|
81,000
|
|
|
|
87,000
|
|
Restricted
cash
|
|
|
360,000
|
|
|
|
—
|
|
Goodwill
|
|
|
769,000
|
|
|
|
—
|
|
Total
assets
|
|
$
|
43,222,000
|
|
|
$
|
7,972,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Note
payable to related party
|
|
$
|
14,000,000
|
|
|
$
|
—
|
|
Notes
payable
|
|
|
2,760,000
|
|
|
|
—
|
|
Accounts
payable and accrued liabilities
|
|
|
606,000
|
|
|
|
64,000
|
|
Payable
to related parties
|
|
|
1,621,000
|
|
|
|
2,478,000
|
|
Prepaid
rent, security deposits and deferred revenue
|
|
|
208,000
|
|
|
|
—
|
|
Distributions
payable
|
|
|
208,000
|
|
|
|
61,000
|
|
Total
liabilities
|
|
|
19,403,000
|
|
|
|
2,603,000
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 20,000,000 shares authorized; no shares were
issued or outstanding at September 30, 2009 and December 31,
2008
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.01 par value; 580,000,000 shares authorized; 3,598,518 and
1,058,252 shares issued and outstanding at September 30, 2009 and December
31, 2008, respectively
|
|
|
36,000
|
|
|
|
11,000
|
|
Additional
paid-in capital
|
|
|
27,938,000
|
|
|
|
6,597,000
|
|
Accumulated
deficit
|
|
|
(4,102,000
|
)
|
|
|
(1,239,000
|
)
|
Total
stockholders’ equity
|
|
|
23,872,000
|
|
|
|
5,369,000
|
|
Noncontrolling
interests
|
|
|
(53,000
|
)
|
|
|
—
|
|
Total
equity
|
|
|
23,819,000
|
|
|
|
5,369,000
|
|
Total
liabilities and equity
|
|
$
|
43,222,000
|
|
|
$
|
7,972,000
|
|
The
accompanying notes are an integral part of these condensed consolidated interim
financial statements.
CORNERSTONE GROWTH & INCOME REIT, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
||||||||||
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental
revenues
|
|
$
|
1,431,000
|
|
|
$
|
—
|
|
|
$
|
3,462,000
|
|
|
$
|
—
|
|
Tenant
reimbursements and other income
|
|
|
458,000
|
|
|
|
—
|
|
|
|
1,127,000
|
|
|
|
—
|
|
|
|
|
1,889,000
|
|
|
|
—
|
|
|
|
4,589,000
|
|
|
|
—
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating and maintenance
|
|
|
1,499,000
|
|
|
|
—
|
|
|
|
3,691,000
|
|
|
|
—
|
|
General
and administrative
|
|
|
211,000
|
|
|
|
287,000
|
|
|
|
839,000
|
|
|
|
660,000
|
|
Asset
management fees
|
|
|
60,000
|
|
|
|
—
|
|
|
|
151,000
|
|
|
|
—
|
|
Real
estate acquisition costs
|
|
|
252,000
|
|
|
|
102,000
|
|
|
|
1,101,000
|
|
|
|
102,000
|
|
Depreciation
and amortization
|
|
|
406,000
|
|
|
|
—
|
|
|
|
958,000
|
|
|
|
—
|
|
|
|
|
2,428,000
|
|
|
|
389,000
|
|
|
|
6,740,000
|
|
|
|
762,000
|
|
Loss
from operations
|
|
|
(539,000
|
)
|
|
|
(389,000
|
)
|
|
|
(2,151,000
|
)
|
|
|
(762,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3,000
|
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
2,000
|
|
Interest
expense
|
|
|
(293,000
|
)
|
|
|
—
|
|
|
|
(760,000
|
)
|
|
|
(1,000
|
)
|
Net
loss
|
|
|
(829,000
|
)
|
|
|
(387,000
|
)
|
|
|
(2,905,000
|
)
|
|
|
(761,000
|
)
|
Less:
Net (loss) income attributable to the noncontrolling
interests
|
|
|
(8,000
|
)
|
|
|
3,000
|
|
|
(42,000
|
)
|
|
|
(124,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(821,000
|
)
|
|
$
|
(390,000
|
)
|
|
$
|
(2,863,000
|
)
|
|
$
|
(637,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share attributable to common
stockholders
|
|
$
|
(0.30
|
)
|
|
$
|
(3.62
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(44.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
2,775,594
|
|
|
|
107,743
|
|
|
|
1,682,899
|
|
|
|
14,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
declared, per common share
|
|
$
|
0.19
|
|
|
$
|
0.10
|
|
|
$
|
0.56
|
|
|
$
|
0.10
|
|
The
accompanying notes are an integral part of these condensed consolidated interim
financial statements.
CORNERSTONE GROWTH & INCOME REIT, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EQUITY
For
the Nine months Ended September 30, 2009 and 2008
(Unaudited)
|
Common
Stock
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Number of Shares
|
|
|
Common Stock Par Value
|
|
|
Additional
Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Total
Stockholders’ Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
||||||||
Balance
- December 31, 2008
|
|
|
1,058,252
|
|
|
$
|
11,000
|
|
|
$
|
6,597,000
|
|
|
$
|
(1,239,000
|
)
|
|
$
|
5,369,000
|
|
|
$
|
—
|
|
|
$
|
5,369,000
|
|
Issuance
of common stock
|
|
|
2,557,511
|
|
|
|
25,000
|
|
|
|
25,522,000
|
|
|
|
—
|
|
|
|
25,547,000
|
|
|
|
—
|
|
|
|
25,547,000
|
|
Redeemed
shares
|
|
|
(17,245
|
)
|
|
|
—
|
|
|
|
(172,000
|
)
|
|
|
—
|
|
|
|
(172,000
|
)
|
|
|
—
|
|
|
|
(172,000
|
)
|
Offering
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,861,000
|
)
|
|
|
—
|
|
|
|
(2,861,000
|
)
|
|
|
—
|
|
|
|
(2,861,000
|
)
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,148,000
|
)
|
|
|
—
|
|
|
|
(1,148,000
|
)
|
|
|
(11,000
|
)
|
|
|
(1,159,000
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,863,000
|
)
|
|
|
(2,863,000
|
)
|
|
|
(42,000
|
)
|
|
|
(2,905,000
|
)
|
Balance
– September 30, 2009
|
|
|
3,598,518
|
|
|
$
|
36,000
|
|
|
$
|
27,938,000
|
|
|
$
|
(4,102,000
|
)
|
|
$
|
23,872,000
|
|
|
$
|
(53,000
|
)
|
|
$
|
23,819,000
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Number of Shares
|
|
|
Common Stock Par Value
|
|
|
Additional Paid-In
Capital
|
|
|
Accumulated Deficit
|
|
|
Total
Stockholders’ Equity
|
|
|
Noncontrolling
Interest
|
|
|
Total
Equity
|
|
||||||||
Balance
- December 31, 2007
|
|
|
100
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
(133,000
|
)
|
|
$
|
(132,000
|
)
|
|
$
|
127,000
|
|
|
$
|
(5,000
|
)
|
Issuance
of common stock
|
|
|
511,478
|
|
|
|
5,000
|
|
|
|
5,109,000
|
|
|
|
—
|
|
|
|
5,114,000
|
|
|
|
—
|
|
|
|
5,114,000
|
|
Redeemed
shares
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
||||
Offering
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,186,000
|
)
|
|
|
—
|
|
|
|
(3,186,000
|
)
|
|
|
—
|
|
|
|
(3,186,000
|
)
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
(32,000
|
)
|
|
|
—
|
|
|
|
(32,000
|
)
|
|
|
(3,000
|
)
|
|
|
(35,000
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(637,000
|
)
|
|
|
(637,000
|
)
|
|
|
(124,000
|
)
|
|
|
(761,000
|
)
|
Balance
– September 30, 2008
|
|
|
511,578
|
|
|
$
|
5,000
|
|
|
$
|
1,892,000
|
|
|
$
|
(770,000
|
)
|
|
$
|
1,127,000
|
|
$
|
—
|
|
|
$
|
1,127,000
|
The
accompanying notes are an integral part of these condensed consolidated interim
financial statements.
CORNERSTONE GROWTH & INCOME REIT, INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
months Ended
|
||||||||
|
September 30,
|
|
||||||
|
2009
|
|
|
2008
|
|
|||
Cash
flows from operating activities:
|
|
|
|
|
|
|
||
Net
loss
|
|
$
|
(2,905,000
|
)
|
|
$
|
(761,000
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities (net of
acquisitions):
|
|
|
|
|
|
|
|
|
Amortization
of deferred financing costs
|
|
|
76,000
|
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
958,000
|
|
|
|
—
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Tenant
and other receivables
|
|
|
119,000
|
|
|
—
|
|
|
Prepaid
expenses
|
|
|
36,000
|
|
|
71,000
|
|
|
Accounts
payable and accrued liabilities
|
|
|
337,000
|
|
|
|
(69,000
|
)
|
Prepaid
rent, security deposits and deferred revenue
|
|
|
122,000
|
|
|
|
—
|
|
Payable
to related parties
|
|
|
(126,000
|
)
|
|
|
79,000
|
|
Net
cash used in operating activities
|
|
|
(1,383,000
|
)
|
|
|
(680,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Real
estate acquisitions
|
|
|
(24,793,000
|
)
|
|
|
—
|
|
Real
estate additions
|
|
|
(79,000
|
)
|
|
|
—
|
|
Restricted
cash
|
|
|
(360,000
|
)
|
|
|
—
|
|
Escrow
deposits
|
|
|
386,000
|
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(24,846,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from note payable to related party
|
|
|
14,000,000
|
|
|
|
—
|
|
Proceeds
from notes payable
|
|
|
2,760,000
|
|
|
|
—
|
|
Issuance
of common stock
|
|
|
25,036,000
|
|
|
|
5,109,000
|
|
Redeemed
shares
|
|
|
(172,000
|
)
|
|
|
—
|
|
Offering
costs
|
|
|
(3,556,000
|
)
|
|
|
(685,000
|
)
|
Distributions
paid to stockholders
|
|
|
(480,000
|
)
|
|
|
(2,000
|
)
|
Distributions
paid to noncontrolling interests
|
|
|
(11,000
|
)
|
|
|
(3,000
|
)
|
Deferred
financing costs
|
|
|
(102,000
|
)
|
|
|
—
|
|
Net
cash provided by financing activities
|
|
|
37,475,000
|
|
|
|
4,419,000
|
|
Net
increase in cash and cash equivalents
|
|
|
11,246,000
|
|
|
|
3,739,000
|
|
Cash
and cash equivalents - beginning of period
|
|
|
7,449,000
|
|
|
|
85,000
|
|
Cash
and cash equivalents - end of period
|
|
$
|
18,695,000
|
|
|
$
|
3,824,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
670,000
|
|
|
$
|
—
|
|
Supplemental
disclosure of non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Distributions
declared not paid
|
|
$
|
208,000
|
|
|
$
|
24,000
|
|
Distribution
reinvested
|
|
$
|
521,000
|
|
|
$
|
6,000
|
|
Accrued
offering costs
|
|
$
|
101,000
|
|
$
|
2,502,000
|
|
|
Accrued
real estate addition
|
|
$
|
5,000
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these condensed consolidated interim
financial statements.
CORNERSTONE GROWTH & INCOME REIT, INC. AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(UNAUDITED)
1.
|
Organization
|
Cornerstone
Growth & Income REIT, Inc., a Maryland corporation, was formed on October
16, 2006 under the General Corporation Law of Maryland for the purpose of
engaging in the business of investing in and owning commercial real
estate. As used in this report, the “Company”, “we”, “us”
and “our” refer to Cornerstone Growth & Income REIT, Inc. and its
consolidated subsidiaries, except where context otherwise requires. We are newly
formed and are subject to the general risks associated with a start-up
enterprise, including the risk of business
failure. Subject to certain restrictions and limitations,
our business is managed by an affiliate, Cornerstone Leveraged Realty Advisors,
LLC, a Delaware limited liability company that was formed on October 16, 2006
(the “Advisor”), pursuant to an advisory agreement.
Cornerstone
Growth & Income Operating Partnership, L.P., a Delaware limited partnership
(the “Operating Partnership”) was formed on October 17,
2006. At September 30, 2009, we owned approximately a
99.4% general partner interest in the Operating Partnership while the Advisor
owned approximately a 0.6% limited partnership
interest. In addition, the Advisor owned approximately
0.9% of limited partnership interest in CGI Healthcare Operating Partnership,
L.P., a subsidiary of the Operating Partnership. We anticipate that we will
conduct all or a portion of our operations through the Operating Partnership.
Our financial statements and the financial statements of the Operating
Partnership are consolidated in the accompanying condensed consolidated
financial statements. All intercompany accounts and
transactions have been eliminated in consolidation.
For
federal income tax purposes, we have elected to be taxed as a REIT, under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
“Code) beginning with our taxable year ending December 31,
2008. REIT status imposes limitations related
to operating assisted-living
properties. Generally, to qualify as a REIT,
we cannot directly operate assisted-living
facilities. However, such facilities may generally be
operated by a taxable REIT subsidiary (“TRS”) pursuant to a lease with the
REIT. Therefore, we have formed Master HC TRS, LLC
(“Master TRS”), a wholly owned subsidiary of CGI Healthcare Operating
Partnership, LP, to lease any assisted-living properties we acquire and to
operate the assisted-living properties pursuant to contracts with unaffiliated
management companies. Master TRS and the REIT have made
the applicable election for Master TRS to qualify as a
TRS. Under the management contracts, the management
companies will have direct control of the daily operations of these
assisted-living properties.
2.
|
Public
Offering
|
On
November 14, 2006, Terry G. Roussel, our President and CEO, purchased 100 shares
of common stock for $1,000 and became our initial stockholder. Our articles of
incorporation authorize 580,000,000 shares of common stock with a par value of
$0.01 and 20,000,000 shares of preferred stock with a par value of $0.01. We are
offering a maximum of 50,000,000 shares of common stock, consisting of
40,000,000 shares for sale to the public (the “Primary Offering”) and 10,000,000
shares for sale pursuant to the distribution reinvestment plan (collectively,
the “Offering”).
On June
20, 2008, the Securities and Exchange Commission (the "SEC") declared our
amended registration statement (SEC Registration No. 333-139704) effective, and
we began accepting subscriptions for shares under our
offering. As of August 10, 2008, we had sold
approximately $1.0 million of stock to the public, which was sufficient to
satisfy the minimum offering amount in all states except Minnesota, New York and
Pennsylvania, and on August 19, 2008, we broke escrow with respect to
subscriptions received from all states except Minnesota, New York and
Pennsylvania. We subsequently satisfied the minimum offering amounts and broke
escrow with all states.
As of
September 30, 2009, we had sold a total of approximately 3.6 million shares of
our common stock for aggregate gross proceeds of approximately $35.5 million. We
intend to use the net proceeds of the Offering to invest in real estate
including healthcare, multi-tenant industrial, net-leased retail
properties and other real estate investments where we believe there are
opportunities to enhance cash flow and value.
We
retained Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of the Advisor,
to serve as our dealer manager for the Offering. PCC is
responsible for marketing our shares being offered pursuant to the Offering. PCC
has been the subject of a non-public inquiry by FINRA focused on private
placements conducted by our dealer manager during the period from January 1,
2004 through the present. We are not the issuer of any of
the securities offered in the private placements that are the subject of FINRA’s
investigation. Such issuers, however, are affiliates of
our Advisor. FINRA informed our dealer manager that it
has concluded its inquiry and has indicated its intention to allege that PCC
violated NASD Rules 2210 (Communications with the Public), 3010 (Supervision)
and 2110 (Standards of Commercial Honor and Principles of Trade) (which is now
FINRA Rule 2010) in connection with certain private
placements. FINRA has proposed significant sanctions
against PCC and Terry Roussel, who serves as PCC’s president and chief
compliance officer and as one of its two directors. PCC
has informed us that it believes that it has complied with the requirements of
the conduct rules at issue and intends to challenge these findings before a
FINRA hearing panel if PCC does not first reach a satisfactory settlement with
FINRA regarding the alleged violations. If FINRA imposes
sanctions against PCC, PCC’s business could be materially adversely impacted,
which could adversely affect PCC’s ability to serve effectively as the dealer
manager of the Offering.
3.
|
Summary
of Significant Accounting Policies
|
The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to "Summary of Significant Accounting Policies" contained in our Annual Report on Form 10-K for the year ended December 31, 2008.
Interim
Financial Information
The
accompanying interim condensed consolidated financial statements have been
prepared by our management in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and in conjunction with the
rules and regulations of the SEC. Certain information and note disclosures
required for annual financial statements have been condensed or excluded
pursuant to SEC rules and regulations. Accordingly, the interim condensed
consolidated financial statements do not include all of the information and
notes required by GAAP for complete financial
statements. The accompanying financial information
reflects all adjustments which are, in the opinion of our management, of a
normal recurring nature and necessary for a fair presentation of our financial
position, results of operations and cash flows for the interim periods. In
preparing the accompanying interim financial statements, we have evaluated the
potential occurrence of subsequent events through November 13,
2009, the date at which the financial statements were issued. Operating results
for the nine months ended September 30, 2009 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2009. Our
accompanying interim condensed consolidated financial statements should be read
in conjunction with our audited consolidated financial statements and the notes
thereto included on our 2008 Annual Report on Form 10-K, as filed with the
SEC.
Cash
and Cash Equivalents
We
consider all short-term, highly liquid investments that are readily convertible
to cash with a maturity of three months or less at the time of purchase to be
cash equivalents. Cash is generally invested in
government backed securities and investment-grade short-term instruments and the
amount of credit exposure to any one commercial issuer is limited.
Restricted
Cash
Restricted
cash represents cash held in an interest bearing certificate of deposit account
as required under the terms of a mortgage loan.
Investments
in Real Estate
In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standard Codification (the “ASC”) FASB ASC 805-10, Business
Combinations. In summary, FASB ASC 805-10 requires
the acquirer of a business combination to measure at fair value the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, with limited
exceptions. In addition, this standard requires
acquisition costs to be expensed as incurred. The
standard is effective for fiscal years beginning after December 15, 2008, and is
to be applied prospectively, with no earlier adoption
permitted. We adopted this standard on January 1, 2009
and have expensed acquisition costs accordingly.
We
allocate the purchase price of our properties in accordance with FASB ASC
805-10. Upon acquisition of a property, we allocate the purchase price of the
property based upon the fair value of the assets acquired, which generally
consist of land, buildings, site improvements, furniture fixtures and equipment
and intangible lease assets or liabilities including in-place leases, above
market and below market leases, tenant relationships and
goodwill. We allocated the purchase price to the fair
value of the tangible assets of an acquired property by valuing the property as
if it were vacant. The value of the building is depreciated over an estimated
useful life of 39 years.
Tenant
relationships and in-place lease values are calculated based on management’s
evaluation of the specific characteristics of each tenant’s lease and our
overall relationship with the respective tenant. The
value of tenant relationships and in-place lease intangibles, which are included
as a component of investments in real estate, is amortized to expense over the
weighted average expected lease term.
Acquired
above and below market leases is valued based on the present value of the
difference between prevailing market rates and the in-place rates over the
remaining lease term. The value of acquired above and below market leases is
amortized over the remaining non-cancelable terms of the respective leases as an
adjustment to rental revenue on our condensed consolidated statements of
operations.
Should a
significant tenant terminate their lease, the unamortized portion of intangible
assets or liabilities will be charged to revenue.
Goodwill
represents the excess of acquisition cost over the fair value of identifiable
net assets of the business acquired.
Impairment
of Real Estate Assets and Goodwill
Real
Estate Assets
Rental
properties, properties undergoing development and redevelopment, land held for
development and intangibles are individually evaluated for impairment in
accordance with FASB ASC 360-10, Property, Plant &
Equipment, when conditions exist which may indicate that it is probable
that the sum of expected future undiscounted cash flows is less than the
carrying amount. Impairment indicators for our rental
properties, properties undergoing development and redevelopment, and land held
for development is assessed by project and include, but is not limited to,
significant fluctuations in estimated net operating income, occupancy changes,
construction costs, estimated completion dates, rental rates and other market
factors. We assess the expected undiscounted cash flows
based upon numerous factors, including, but not limited to, appropriate
capitalization rates, construction costs, available market information,
historical operating results, known trends and market/economic conditions that
may affect the property and our assumptions about the use of the asset,
including, if necessary, a probability-weighted approach if multiple outcomes
are under consideration. Upon determination that
impairment has occurred and that the future undiscounted cash flows are less
than the carrying amount, a write-down will be recorded to reduce the carrying
amount to its estimated fair value.
Goodwill
Goodwill
and intangibles with infinite lives must be tested for impairment annually or
more frequently if events or changes in circumstances indicate that the related
asset might be impaired. Management uses all available information to make these
fair value determinations, including the present values of expected future cash
flows using discount rates commensurate with the risks involved in the assets.
Impairment testing entails estimating future net cash flows relating to the
asset, based on management's estimate of market conditions including market
capitalization rate, future rental revenue, future operating expenses and future
occupancy percentages. Determining the fair value of
goodwill involves management judgment and is ultimately based on management's
assessment of the value of the assets and, to the extent available, third party
assessments. We perform our annual impairment
test as of December 31 of each year.
Revenue
Recognition
Revenue
is recorded in accordance with FASB ASC 840-10, Leases, and SEC Staff
Accounting Bulletin No. 104, “Revenue Recognition in Financial
Statements, as amended” (“SAB 104”). FASB ASC 840-10 requires that
revenue be recognized after four basic criteria are met. These four criteria
include persuasive evidence of an arrangement, the rendering of service, fixed
and determinable income and reasonably assured collectability. Leases with fixed
annual rental escalators are generally recognized on a straight-line basis over
the initial lease period, subject to a collectability assessment. Rental income
related to leases with contingent rental escalators is generally recorded based
on the contractual cash rental payments due for the period. Because our leases
may provide for free rent, lease incentives, or other rental increases at
specified intervals, we will be required to straight-line the recognition of
revenue, which will result in the recording of a receivable for rent not yet due
under the lease terms.
Tenant
and Other Receivables
Our
revenues are comprised largely of rental income and other income collected from
tenants. Tenant receivables are recorded at the original amount earned, less an
allowance for any doubtful accounts. Management assesses
the reliability of tenant receivables on an ongoing basis and provides for
allowances as such balances, or portions thereof, become
uncollectible.
Our
allowance for doubtful accounts was approximately $3,000 and $0 as of September
30, 2009 and December 31, 2008.
Deferred
Financing Costs
Costs
incurred in connection with debt financing are recorded as deferred financing
costs. Deferred financing costs are amortized over the
contractual terms of the respective financings. Costs
without future economic benefit are expensed as they are
identified.
Organizational
and Offering Costs
The
Advisor funds organization and offering costs on our
behalf. We are required to reimburse the Advisor for such
organization and offering costs up to 3.5% of the cumulative capital raised in
the Primary Offering. Organization and offering costs
include items such as legal and accounting fees, marketing, due diligence,
promotional and printing costs and amounts to reimburse our advisor for all
costs and expenses such as salaries and direct expenses of employees of the
Advisor and its affiliates in connection with registering and marketing our
shares. All offering costs are recorded as an offset to
additional paid-in capital, and all organization costs are recorded as an
expense at the time we become liable for the payment of these amounts. At times
during our offering stage, the amount of organization and offering expenses that
we incur, or that the Advisor and its affiliates incur on our behalf, may exceed
3.5% of the gross offering proceeds then raised, but the Advisor has agreed to
reimburse us to the extent that our organization and offering expenses exceed
3.5% of aggregate gross offering proceeds at the conclusion of the Offering. In
addition, the Advisor will also pay any organization and offering expenses to
the extent that such expenses, plus sales commissions and the dealer manager fee
(but not the acquisition fees or expenses) are in excess of 13.5% of gross
offering proceeds.
Consolidation
Considerations for Our Investments in Joint Ventures
FASB ASC
810-10, Consolidation,
which addresses how a business enterprise should evaluate whether it has a
controlling interest in an entity through means other than voting rights and
accordingly should consolidate the entity. Before
concluding that it is appropriate to apply the voting interest consolidation
model to an entity, an enterprise must first determine that the entity is not a
variable interest entity. We evaluate, as appropriate,
our interests, if any, in joint ventures and other arrangements to determine if
consolidation is appropriate.
Depreciation
of Real Property Assets
We are
required to make subjective assessments as to the useful lives of depreciable
assets. We regularly consider the period of future benefit of the asset to
determine the appropriate useful lives.
Depreciation
of our real estate assets is charged to expense on a straight-line basis over
the assigned useful lives, which ranges from two and a half to 39
years.
Noncontrolling
Interests in Consolidated Subsidiaries
Noncontrolling
interests relate to the interests in the consolidated entities that are not
wholly-owned by us.
Uncertain
Tax Positions
In
accordance with the requirements of FASB ASC 740-10, Income
Taxes, favorable tax positions are included in the calculation
of tax liabilities if it is more likely than not that the Company’s adopted tax
position will prevail if challenged by tax authorities. As a result of our REIT
status, we are able to claim a dividends-paid deduction on our tax return to
deduct the full amount of common dividends paid to stockholders when computing
our annual taxable income, which results in our taxable income being passed
through to our stockholders. A REIT is subject to a 100% tax on the net income
from prohibited transactions. A “prohibited transaction” is the sale or other
disposition of property held primarily for sale to customers in the ordinary
course of a trade or business. There is a safe harbor which, if met, expressly
prevents the IRS from asserting the prohibited transaction test. We have not had
any sales of properties to date. We have no income tax expense, deferred tax
assets or deferred tax liabilities associated with any such uncertain tax
positions for the operations of any entity included in the consolidated results
of operations.
Income
Taxes
For
federal income tax purposes, we have elected to be taxed as a REIT, under
Sections 856 through 860 of the Code beginning with our taxable year ending
December 31, 2008. To qualify as a REIT, we must meet certain organizational and
operational requirements, including a requirement to currently distribute at
least 90% of the REIT’s ordinary taxable income to
stockholders. As a REIT, we generally will not be subject
to federal income tax on taxable income that we distribute to our
stockholders. If we fail to qualify as a REIT in any
taxable year, we will then be subject to federal income taxes on our taxable
income at regular corporate rates and will not be permitted to qualify for
treatment as a REIT for federal income tax purposes for four years following the
year during which qualification is lost unless the Internal Revenue Service
grants us relief under certain statutory provisions. Such
an event could materially adversely affect our net income and net cash available
for distribution to stockholders. However, we believe
that we will be organized and operate in such a manner as to qualify for
treatment as a REIT and intend to operate in the foreseeable future in such a
manner so that we will remain qualified as a REIT for federal income tax
purposes. Although we had net operating loss carryovers from years prior to our
electing REIT status for the current year, the deferred tax asset associated
with such net operating loss carryovers may not be utilized by us as a
REIT. As a result, a valuation allowance for 100% of the
deferred tax asset generated has been recorded as of September 30,
2009.
We have
formed Master TRS, and Master TRS has made the applicable election to be subject
to state and federal income tax as a C corporation. The
operating results from Master TRS are included in the consolidated results of
operations. With respect to Master TRS, we account for
income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the difference are expected to
reverse. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes
the enactment date.
We record
net deferred tax assets to the extent we believe these assets will more likely
than not be realized. In making such determination, we
consider all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable
income, tax planning strategies and recent financial
operations. In the event we were to determine that we
would be able to realize our deferred income tax assets in the future in excess
of their net recorded amount, we would make an adjustment to the valuation
allowance which would reduce the provision for income taxes.
A net
operating loss in the amount of approximately $307,000 was generated by Master
TRS as of September 30, 2009. We believe it is more
likely than not that the benefit from such net operating loss will not be
realized. In recognition of this risk, we have provided a
valuation allowance in the full amount of the deferred tax asset associated with
such loss. If our assumptions change and we determine we
will be able to realize the tax benefit relating to such loss, the tax benefit
associated with such loss will be recognized as a reduction of income tax
expense at such time. We have no deferred tax liabilities.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to a concentration of credit
risk are primarily cash investments; cash is generally invested in
investment-grade short-term instruments. Currently, the
Federal Deposit Insurance Corporation, or FDIC, generally insures amounts up to
$250,000 per depositor per insured bank. This amount is scheduled to be reduced
to $100,000 after December 31, 2009. As of September 30,
2009 we had cash accounts in excess of FDIC insured limits.
Fair
Value of Financial Instruments
On
January 1, 2008, we adopted FASB ASC 820-10, Fair Value Measurements and
Disclosures. FASB ASC 820-10 defines fair value, establishes a framework
for measuring fair value in GAAP and provides for expanded disclosure about fair
value measurements. FASB ASC 820-10 applies prospectively to all other
accounting pronouncements that require or permit fair value
measurements The adoption of FASB ASC 820-10 did not have a material
impact on our consolidated financial statements because we do not record our
financial assets and liabilities in our consolidated financial statements at
fair value.
We
adopted FASB ASC 820-10 with respect to our non-financial assets and
non-financial liabilities on January 1, 2009. The adoption of FASB ASC 820-10
with respect to our non-financial assets and liabilities did not have a material
impact on our consolidated financial statements.
The FASB
ASC 825-10, Financial Instruments, requires the disclosure
of fair value information about financial instruments whether or not recognized
on the face of the balance sheet, for which it is practical to estimate that
value.
We
generally determine or calculate the fair value of financial instruments using
quoted market prices in active markets when such information is available or
using appropriate present value or other valuation techniques, such as
discounted cash flow analyses, incorporating available market discount rate
information for similar types of instruments and our estimates for
non-performance and liquidity risk. These techniques are significantly affected
by the assumptions used, including the discount rate, credit spreads, and
estimates of future cash flow.
Our
consolidated balance sheets include the following financial instruments: cash
and cash equivalents, tenant and other receivables, payable to related parties,
prepaid rent, security deposits, and deferred revenue, accounts payable and
accrued liabilities, note payable to related party, restricted cash and notes
payable. We consider the carrying values of cash and cash equivalents,
restricted cash, tenant and other receivables, payable to related parties, note
payable, prepaid rent, security deposits, and deferred revenue, accounts payable
and accrued liabilities to approximate fair value for these financial
instruments because of the short period of time between origination of the
instruments and their expected payment.
The fair
value of notes payable is estimated using lending rates
available to us for financial instruments with similar terms and maturities and
had been calculated to approximate the carrying value. The fair value
of the note payable to related party is not determinable due to the related
party nature of the note payable.
Use
of Estimates
The
preparation of our consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of the assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could
materially differ from those estimates.
Segment
Disclosure
FASB ASC
280-10, Segment
Reporting, establishes standards for reporting financial and descriptive
information about an enterprise’s reportable
segments. Our current business consists of acquiring and
operating real estate assets. Management evaluates
operating performance on an individual property
level. However, as each of our properties has similar
economic characteristics, our properties have been aggregated into one
reportable segment.
Adoption
of Accounting Pronouncements
On
January 1, 2009, we adopted FASB ASC 810-10-65, Consolidation, which
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. FASB ASC 810-10-65 also requires consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest and requires disclosure, on the
face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling
interest.
FASB ASC
810-10-65 was required to be applied prospectively after adoption, with the
exception of the presentation and disclosure requirements, which were applied
retrospectively for all periods presented. As a result of the adoption of FASB
ASC 810-10-65, we reclassified noncontrolling interests to permanent equity in
the accompanying condensed consolidated balance sheets and recorded a decrease
to the carrying value of noncontrolling interests of approximately $53,000 to
reflect the noncontrolling interest’s proportionate share of losses during the
nine months ended September 30, 2009. In periods subsequent to the
adoption of FASB ASC 810-10-65, we will periodically evaluate individual
noncontrolling interests for the ability to continue to recognize the
noncontrolling interest as permanent equity in the consolidated balance sheets.
Any noncontrolling interest that fails to qualify as permanent equity will be
reclassified as temporary equity and adjusted to the greater of (a) the carrying
amount, or (b) its redemption value as of the end of the period in which the
determination is made.
On April
9, 2009, the FASB issued three FASB Staff Positions (“FSP”) to provide
additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities.
FASB ASC
820-10-65-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides additional guidance for estimating fair value in
accordance with FASB ASC 820-10 when the volume and level of activity for the
asset or liability have significantly decreased in relation to normal market
activity. This FSP states a reporting entity shall evaluate circumstances to
determine whether the transaction is orderly based on the weight of the
evidence. Additional disclosures required by this FSP include the inputs and
valuation techniques used to measure fair values and any changes in
such.
FASB ASC
825-10-65-1, Interim
Disclosures about Fair Value of Financial Instruments, requires
disclosures about fair value of financial instruments for interim reporting
periods as well as in annual financial statements.
FASB ASC
320-10-65-1, Recognition and
Presentation of Other-Than-Temporary Impairments, intends to bring
greater consistency to the timing of impairment recognition, and provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. The FSP also
requires increased and timely disclosures regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses.
The FSPs
are effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15,
2009. On April 1, 2009, we adopted the FSPs
to enhance disclosures regarding fair value
measurements. The adoption of these FSPs did not have a
significant impact on our condensed consolidated financial
statements.
On April
13, 2009, SEC Office of the Chief Accountant and Division of Corporation Finance
issued SEC Staff Accounting Bulletin 111 ("SAB 111"). SAB 111 amends and
replaces FASB ASC 320-10-S99-1, Miscellaneous Accounting – Other
Than Temporary Impariment of Certain Investments in Equity Securities, to
reflect FASB ASC 320-10-65-1. This FSP provides guidance for assessing whether
an impairment of a debt security is other than temporary, as well as how such
impairments are presented and disclosed in the financial statements. The amended
FASB ASC 320-10-S99-1 maintains the prior staff views related to equity
securities but has been amended to exclude debt securities from its scope. SAB
111 is effective upon the adoption of FASB ASC 320-10-65-1. The adoption of SAB
111 on April 1, 2009 did not have a material effect on our condensed
consolidated financial statements.
In June
2009, the FASB issued FASB ASC 855-10, Subsequent Events, which
establishes general standards of accounting for and disclosures of events that
occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. We have adopted this standard as of June 30,
2009. The adoption of this standard did not have a
material effect on our condensed consolidated financial
statements.
In June
2009, the FASB issued FASB ASC 105-10, Generally Accepted Accounting
Principles, which will become the source of authoritative US GAAP
recognized by the FASB to be applied to nongovernmental entities. It is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. We adopted this standard as of September 30,
2009. The adoption of this standard did not have a material effect on
our condensed consolidated financial statements.
Recently
Issued Accounting Pronouncements
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”), (SFAS 167 shall remain authoritative until
integrated in the ASC), which amends the consolidation guidance applicable to
variable interest entities. The amendments to the consolidation guidance affect
all entities currently within the scope of FIN 46(R), as well as qualifying
special-purpose entities that are currently excluded from the scope of FIN
46(R). SFAS 167 is effective as of the beginning of the first fiscal year that
begins after November 15, 2009. We will adopt this
standard on January 1, 2010. We are in the process
of evaluating the impact of this standard.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets” (“SFAS 166”), (SFAS 166 shall remain authoritative
until integrated in the ASC). SFAS 166 removes the concept of a qualifying
special-purpose entity from SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS
140”) and removes the exception from applying FIN 46R. This statement also
clarifies the requirements for isolation and limitations on portions of
financial assets that are eligible for sale accounting. This statement is
effective for fiscal years beginning after November 15, 2009. We will adopt this
standard on January 1, 2010. We do not
believe that the adoption of this standard will have a material effect on our
condensed consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update, or ASU, 2009-05, Measuring Liabilities at Fair
Value, ASU 2009-05 provides guidance on measuring the fair value of
liabilities under FASB Codification Topic 820, Fair Value Measurements and
Disclosure. Specifically, the guidance reaffirms that fair value
measurement of a liability assumes the transfer of a liability to a market
participant as of the measurement date, and presumes that the liability is to
continue and is not settled with a counterparty. Further, nonperformance risk
does not change after transfer of the liability. ASU 2009-05 also provides
guidance on the valuation techniques to estimate fair value of a liability in an
active and inactive market. ASU 2009-05 is effective for the first interim or
annual reporting period beginning after issuance. We will adopt ASU 2009-05 on
October 1, 2009, which will only apply to the disclosures of fair value of
financial instruments. The adoption of ASU 2009-05 is not expected to have a
material impact on our footnote disclosures.
4.
|
Investment
in Real Estate
|
As of
September 30, 2009, our portfolio consists of two properties which were
approximately 92.8% leased. The following table provides
summary information regarding our properties.
Property
Name
|
Location
|
Date
Purchased
|
|
Rentable
Square Footage
|
|
|
Purchase
Price
|
|
|
Debt
|
|
|
September 30,
2009 % Leased
|
|
||||||
Caruth
Haven Court
|
Highland
Park, TX
|
January 22,
2009
|
|
|
46,083
|
|
|
$
|
20,500,000
|
|
|
$
|
14,000,000
|
|
|
|
91.2
|
%
|
||
The
Oaks Bradenton
|
Bradenton,
FL
|
May 1,
2009
|
|
|
10,580
|
|
|
$
|
4,500,000
|
|
|
$
|
2,760,000
|
|
|
|
100.0
|
%
|
As of
September 30, 2009, cost and accumulated depreciation and amortization related
to real estate assets and related lease intangibles were as
follows:
|
|
Buildings
and Improvements
|
|
|
Site
Improvements
|
|
|
Furniture
and Fixtures
|
|
|
Identified
Intangible Assets
|
|
||||
Cost
|
|
$
|
16,686,000
|
|
|
$
|
201,000
|
|
|
$
|
386,000
|
|
|
$
|
2,143,000
|
|
Accumulated
depreciation and amortization
|
|
|
(283,000
|
)
|
|
|
(8,000
|
)
|
|
|
(48,000
|
)
|
|
|
(619,000
|
)
|
Net
|
|
$
|
16,403,000
|
|
|
$
|
193,000
|
|
|
$
|
338,000
|
|
|
$
|
1,524,000
|
|
As of
December 31, 2008, there were no cost and accumulated depreciation and
amortization related to real estate assets and related lease
intangible.
Depreciation
expense associated with buildings and improvements, site improvements and
furniture and fixtures for the three months ended September 30, 2009 and 2008
was approximately $130,000 and $0,
respectively. Depreciation expense associated with
buildings and improvements, site improvements and furniture and fixtures for the
nine months ended September 30, 2009 and 2008 was approximately $339,000 and $0,
respectively.
As of
September 30, 2009, the estimated useful life for lease intangibles is
approximately two years. As of December 31, 2008, there
were no lease intangibles.
Amortization
associated with the lease intangible assets for the three months ended September
30, 2009 and 2008 was $276,000 and $0,
respectively. Amortization associated with the lease
intangible assets for the nine months ended September 30, 2009 and 2008 was
$619,000 and $0, respectively. Estimated amortization for
October 1, 2009 through December 31, 2009 and each of the two subsequent years
is as follows:
|
|
Lease
Intangibles
|
|
|
October
1, 2009 to December 31, 2009
|
|
$
|
276,000
|
|
2010
|
|
$
|
951,000
|
|
2011
|
|
$
|
297,000
|
|
5.
|
Income
Taxes
|
For
federal income tax purposes, we have elected to be taxed as a REIT, under
Sections 856 through 860 of the Code beginning with our taxable year ended
December 31, 2008, which imposes limitations related to operating
assisted-living properties. As of September 30, 2009, we had acquired two
assisted-living facilities and formed two wholly owned taxable REIT
subsidiaries, or TRSs. The properties will be operated
pursuant to leases with our TRSs. Our TRSs have engaged unaffiliated management
companies to operate the assisted-living
facilities. Under the management contracts, the managers
have direct control of the daily operations of the properties. The TRSs are
wholly owned subsidiaries of Master TRS.
We record
net deferred tax assets to the extent we believe these assets will more likely
than not be realized. In making such determination, we
consider all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable
income, tax planning strategies and recent financial
operations. In the event we were to determine that we
would be able to realize our deferred income tax assets in the future in excess
of their net recorded amount, we would make an adjustment to the valuation
allowance which would reduce the provision for income taxes.
A net
operating loss in the amount of approximately $307,000 was generated by Master
TRS as of September 30, 2009. We believe it is more
likely than not that the benefit from such net operating loss will not be
realized. In recognition of this risk, we have provided a
valuation allowance in the full amount of the deferred tax asset associated with
such loss. If our assumptions change and we determine we
will be able to realize the tax benefit relating to such loss, the tax benefit
associated with such loss will be recognized as a reduction of income tax
expense at such time. We have no deferred tax liabilities.
6.
|
Payable
to Related Parties
|
Payable
to related parties at September 30, 2009 and December 31, 2008 consists of
offering costs, acquisition fees, and expense reimbursement payable and sales
commissions and dealer manager fees incurred to the Advisor and
PCC.
7.
|
Notes
Payable
|
On May 1,
2009, in connection with the acquisition of Windsor Oaks, we borrowed a total of
$2.76 million pursuant to loan agreements with The
PrivateBank. Of the total loan amount, $2.4 million
matures on May 1, 2014 with no option to extend and bears interest at a fixed
rate of 6.25% per annum. The remaining $360,000 matures
on May 1, 2014 and bears interest at a variable rate equivalent to prevailing
market certificate deposits rate plus a 1.5% margin. We
may repay the loan, in whole or in part, on or before May 1, 2014, subject to
prepayment premiums. Monthly payments for the first twelve months will be
interest only. Monthly payments beginning the thirteenth month will include
interest and principal based on a 25-year amortization period. The loan
agreement contains various covenants including financial covenants with respect
to debt service coverage ratios, fixed charge coverage ratio and tenant rent
coverage ratio. As of September 30, 2009, we were in compliance with
all these financial covenants.
During
the three months ended September 30, 2009 and 2008, we incurred approximately
$41,000 and $0 of interest expense, respectively, related to the loan agreements
with The PrivateBank During the nine months ended September 30, 2009
and 2008, we incurred approximately $69,000 and $0 of interest expense,
respectively, related to the loan agreements with The PrivateBank. As of
September 30, 2009 and December 31, 2008, the fixed rate loan agreement had a
balance of approximately $2.4 million and $0, respectively and the variable rate
loan agreement had a balance of $360,000 and $0, respectively.
The
principal payments due for October 1, 2009 to December 31, 2009 and
each of the subsequent years is as follows:
Year
|
|
Principal
amount
|
|
|
October
1, 2009 to December 31, 2009
|
|
$
|
—
|
|
2010
|
|
$
|
24,000
|
|
2011
|
|
$
|
43,000
|
|
2012
|
|
$
|
45,000
|
|
2013
|
|
$
|
48,000
|
|
2014
and thereafter
|
|
$
|
2,600,000
|
|
8.
|
Stockholders’
Equity
|
Common
Stock
Our
articles of incorporation authorize the issuance of 580,000,000 shares of common
stock with a par value of $0.01 and 20,000,000 shares of preferred stock with a
par value of $0.01. As of September 30, 2009, including
distributions reinvested, we had issued approximately 3.6 million shares of
common stock for total gross proceeds of approximately $36.1
million. As of December 31, 2008, including distributions
reinvested, we had issued approximately 1.1 million shares of common stock for a
total of approximately $10.5 million of gross proceeds.
Distributions
We have
adopted a distribution reinvestment plan that allows our stockholders to have
dividends and other distributions otherwise distributable to them invested in
additional shares of our common stock. We
have registered 10,000,000 shares of our common stock for sale pursuant to the
distribution reinvestment plan. The purchase
price per share is 95% of the price paid by the purchaser for our common stock,
but not less than $9.50 per share. As of
September 30, 2009 and December 31, 2008, approximately 61,000 and 7,000 shares,
respectively, had been issued under the distribution reinvestment
plan.
The
following are the distributions declared during the three and nine months ended
September 30, 2008 and 2009:
|
|
Distribution
Declared
|
|
|||||||||
Period
|
|
Cash
|
|
|
Reinvested
|
|
|
Total
|
|
|||
First
quarter 2008
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Second
quarter 2008
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Third
quarter 2008
|
|
$
|
14,000
|
|
|
$
|
18,000
|
|
|
$
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter 2009
|
|
$
|
116,000
|
|
|
$
|
122,000
|
|
|
$
|
238,000
|
|
Second
quarter 2009
|
|
$
|
170,000
|
|
|
$
|
190,000
|
|
|
$
|
360,000
|
|
Third
quarter 2009
|
|
$
|
266,000
|
|
|
$
|
284,000
|
|
|
$
|
550,000
|
|
The
declaration of distributions is at the discretion of our board of directors and
our board will determine the amount of distributions on a regular
basis. The amount of distributions will depend on our
funds from operations, financial condition, capital requirements, annual
distribution requirements under the REIT provisions of the Internal Revenue Code
and other factors our board of directors deems
relevant. We may amend or terminate the distribution
reinvestment plan for any reason at any time upon 10 days prior written notice
to participants.
Stock
Repurchase Program
We have
adopted a stock repurchase program for investors who have held their shares for
at least one year, unless the shares are being redeemed in connection with a
stockholder’s death. Under our current stock repurchase
program, the repurchase price will vary depending on the purchase price paid by
the stockholder and the number of years the shares are
held. Our board of directors may amend, suspend or
terminate the program at any time on 30 days prior notice to stockholders. We
have no obligation to repurchase our stockholders’
shares. Our board of directors intends to waive the
one-year holding period in the event of the death of a stockholder and adjust
the redemption price to 100% of such stockholders purchase price if the
stockholder held the shares for less than three years. Our board of directors
reserves the right in its sole discretion at any time and from time to time,
upon 30 days prior notice to our stockholders, to adjust the redemption price
for our shares of stock, or suspend or terminate our stock repurchase
program.
During
the offering and each of the first seven years following the closing of the
offering, (i) we will have no obligation to redeem shares if the
redemption would cause total redemptions to exceed the proceeds from our
distribution reinvestment program, and (ii) we may not, except to
repurchase the shares of a deceased shareholder, redeem more than 5% of the
number of shares outstanding at the end of the prior calendar year. With respect
to redemptions requested within two years of the death of a stockholder, we may,
but will not be obligated to, redeem shares even if such redemption causes the
number of shares redeemed to exceed 5% of the number of shares outstanding at
the end of the prior calendar year. Beginning seven years after
termination of this primary offering, unless we have commenced another liquidity
event, such as an orderly liquidation or listing of our shares on a national
securities exchange, we will modify our stock repurchase program to permit us to
redeem up to 10% of the number of shares outstanding at the end of the prior
year, using proceeds from any source, including the sale of assets.
During
the nine months ended September 30, 2009, we redeemed shares pursuant to our
stock repurchase program as follows:
Period
|
|
Total
Number of Shares Redeemed (1)
|
|
|
Average
Price Paid per Share
|
|
||
|
|
|
|
|
|
|
||
January
|
|
|
-
|
|
|
$
|
-
|
|
February
|
|
|
-
|
|
|
$
|
-
|
|
March
|
|
|
-
|
|
|
$
|
-
|
|
April
|
|
|
-
|
|
|
$
|
-
|
|
May
|
|
|
-
|
|
|
$
|
-
|
|
June
|
|
|
17,245
|
|
|
$
|
9.83
|
|
July
|
-
|
$
|
-
|
|||||
August
|
-
|
$
|
-
|
|||||
September
|
-
|
$
|
-
|
|||||
|
|
|
17,245
|
|
|
|
|
|
During
the nine months ended September 30, 2008, we did not redeem any shares pursuant
to our stock repurchase program.
Our board
of directors may modify our stock repurchase program so that we can redeem stock
using the proceeds from the sale of our real estate investments or other
sources.
9.
|
Related
Party Transactions
|
On
January 22, 2009, in connection with the acquisition of the Caruth Haven Court,
we entered into a $14.0 million acquisition bridge loan with Cornerstone
Operating Partnership, L.P. See Note 10 for further detail.
The
Company has no employees. Our advisor is primarily responsible for managing our
business affairs and carrying out the directives of our board of
directors. We have an advisory agreement with the advisor
and a dealer manager agreement with PCC which entitle the advisor and PCC to
specified fees upon the provision of certain services with regard to the
Offering and investment of funds in real estate projects, among other services,
as well as reimbursement for organizational and offering costs incurred by the
advisor and PCC on our behalf and reimbursement of certain costs and expenses
incurred by the advisor in providing services to us.
Advisory
Agreement
Under the
terms of the advisory agreement, the Advisor will use commercially reasonable
efforts to present to us investment opportunities to provide a continuing and
suitable investment program consistent with the investment policies and
objectives adopted by our board of directors. The
advisory agreement calls for the Advisor to provide for our day-to-day
management and to retain property managers and leasing agents, subject to the
authority of our board of directors, and to perform other duties.
The fees
and expense reimbursements payable to the Advisor under the advisory agreement
are described below.
Organizational and Offering
Costs. Organizational and offering costs of the
Offering paid by the advisor on our behalf and are being reimbursed to the
Advisor from the proceeds of the Offering. Organizational and offering costs
consist of all expenses (other than sales commissions and the dealer manager
fee) to be paid by us in connection with the Offering, including our legal,
accounting, printing, mailing and filing fees, charges of our escrow holder and
other accountable offering expenses, including, but not limited to, (i) amounts
to reimburse the Advisor for all marketing related costs and expenses such as
salaries and direct expenses of employees of the Advisor
and its affiliates in connection with registering and marketing our shares (ii)
technology costs associated with the offering of our shares; (iii) our costs of
conducting our training and education meetings; (iv) our costs of attending
retail seminars conducted by participating broker-dealers; and (v) payment or
reimbursement of bona fide due diligence
expenses. At times during our offering stage,
the amount of organization and offering expenses that we incur, or that the
Advisor and its affiliates incur on our behalf, may exceed 3.5% of the gross
offering proceeds then raised, but our Advisor has agreed to reimburse us to the
extent that our organization and offering expenses exceed 3.5% of aggregate
gross offering proceeds at the conclusion of our offering. In addition, the
Advisor will also pay any organization and offering expenses to the extent that
such expenses, plus sales commissions and the dealer manager fee (but not the
acquisition fees or expenses) are in excess of 13.5% of gross offering proceeds.
In no event will we have any obligation to reimburse the Advisor for
organizational and offering costs totaling in excess of 3.5% of the gross
proceeds from the Primary Offering. As of September 30,
2009, the Advisor and its affiliates had incurred on our behalf organizational
and offering costs totaling approximately $3.2 million, including approximately
$0.1 million of organizational costs that have been expensed and approximately
$3.1 million of offering costs which reduce net proceeds of our
offering. As of December 31, 2008, the Advisor and its
affiliates had incurred on our behalf organizational and offering costs totaling
approximately $2.8 million, including approximately $0.1 million of
organizational costs that have been expensed and approximately $2.7 million of
offering costs which reduce net proceeds of our offering.
Acquisition Fees and
Expenses. The advisory agreement requires us to
pay the Advisor acquisition fees in an amount equal to 2.0% of the investments
acquired, including any debt attributable to such
investments. A portion of the acquisition fees will be
paid upon receipt of the offering proceeds, and the balance will be paid at the
time we acquire a property. However, if the advisory
agreement is terminated or not renewed, the Advisor must return acquisition fees
not yet allocated to one of our
investments. In addition, we are required to
reimburse the Advisor for direct costs the Advisor incurs and amounts the
Advisor pays to third parties in connection with the selection and acquisition
of a property, whether or not ultimately acquired. For
the three months ended September 30, 2009 and 2008, the Advisor earned
approximately $0.2 million and $0.1 million acquisition fees, respectively. For
the nine months ended September 30, 2009 and 2008, the Advisor earned
approximately $0.7 million and $0.1 million acquisition fees,
respectively.
Management
Fees. The advisory agreement requires us to pay
the Advisor a monthly asset management fee of one-twelfth of 1.0% of the sum of
the aggregate book basis carrying values of our assets invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
calculated in accordance with GAAP. In addition, we will
reimburse the Advisor for the direct costs and expenses incurred by the Advisor
in providing asset management services to us. These fees
and expenses are in addition to management fees that we pay to third party
property managers. For the three months ended September
30, 2009 and 2008, the Advisor earned approximately $60,000 and $0 of asset
management fees, respectively, which were expensed. For the nine months ended
September 30, 2009 and 2008, the Advisor earned approximately $151,000 and $0 of
asset management fees, respectively, which were expensed.
Operating Expenses.
The advisory agreement provides for reimbursement of the Advisor’s direct and
indirect costs of providing administrative and management services to
us. For the three months ended September 30, 2009 and
2008, approximately $102,000 and $119,000 of such costs, respectively, were
reimbursed and included in general and administrative expenses on our condensed
consolidated statement of operations. For the
nine months ended September 30, 2009 and 2008, approximately $355,000 and
$309,000 of such costs, respectively, were reimbursed and included in general
and administrative expenses on our condensed consolidated statement of
operations. The Advisor must pay or reimburse us the amount by which our
aggregate annual operating expenses exceed the greater of 2% of our average
invested assets or 25% of our net income unless a majority of our independent
directors determine that such excess expenses were justified based on unusual
and non-recurring factors.
Disposition
Fee. The advisory agreement provides that if the
Advisor or its affiliate provides a substantial amount of the services (as
determined by a majority of our directors, including a majority of our
independent directors) in connection with the sale of one or more properties, we
will pay the Advisor or such affiliate shall receive at closing a disposition
fee up to 3% of the sales price of such property or
properties. This disposition fee may be paid
in addition to real estate commissions paid to non-affiliates, provided that the
total real estate commissions (including such disposition fee) paid to all
persons by us for each property shall not exceed an amount equal to the lesser
of (i) 6% of the aggregate contract sales price of each property or (ii) the
competitive real estate commission for each property. We will pay the
disposition fees for a property at the time the property is sold.
Subordinated Participation
Provisions. The Advisor is entitled to receive a
subordinated participation upon the sale of our properties, listing of our
common stock or termination of the Advisor, as follows:
|
·
|
After
we pay stockholders cumulative distributions equal to their invested
capital plus a 6% cumulative, non-compounded return, the Advisor will be
paid a subordinated participation in net sale proceeds ranging from a low
of 5% of net sales provided investors have earned annualized return of 6%
to a high of 15% of net sales proceeds if investors have earned annualized
returns of 10% or more.
|
|
·
|
Upon
termination of the advisory agreement, the Advisor will receive the
subordinated performance fee due upon
termination. This fee ranges from a low of 5% of
the amount by which the sum of the appraised value of our assets minus our
liabilities on the date the advisory agreement is terminated plus total
distributions (other than stock distributions) paid prior to termination
of the advisory agreement exceeds the amount of invested capital plus
annualized returns of 6%, to a high of 15% of the amount by which the sum
of the appraised value of our assets minus its liabilities plus all prior
distributions (other than stock distributions) exceeds the amount of
invested capital plus annualized returns of 10% or
more.
|
|
·
|
In
the event we list our stock for trading, the Advisor will receive a
subordinated incentive listing fee instead of a subordinated participation
in net sales proceeds. This fee ranges from a low
of 5% of the amount by which the market value of our common stock plus all
prior distributions (other than stock distributions) exceeds the amount of
invested capital plus annualized returns of 6%, to a high of 15% of the
amount by which the sum of the market value of our stock plus all prior
distributions (other than stock distributions) exceeds the amount of
invested capital plus annualized returns of 10% or
more.
|
Dealer
Manager Agreement
PCC, as
dealer manager, is entitled to receive a sales commission of up to 7% of gross
proceeds from sales in the Primary Offering. PCC is also
entitled to receive a dealer manager fee equal to up to 3% of gross proceeds
from sales in the Primary Offering. PCC is also entitled
to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the
gross proceeds from sales in the Primary Offering. The
advisory agreement requires the Advisor to reimburse us to the extent that
offering expenses including sales commissions, dealer manager fees and
organization and offering expenses (but excluding acquisition fees and
acquisition expenses discussed above) in excess of 13.5% of gross proceeds from
the Offering. For the three months ended September 30,
2009 and 2008, our dealer manager earned sales commission and dealer manager fee
of approximately $1.2 million and $0.5 million,
respectively. For the nine months ended September 30,
2009 and 2008, our dealer manager earned sales commission and dealer manager fee
of approximately $2.5 million and $0.5 million,
respectively. Dealer manager fees and sales commissions
paid to PCC are a cost of capital raised and, as such, are included as a
reduction of additional paid in capital in the accompanying condensed
consolidated balance sheets.
10.
|
Note
Payable to Related Party
|
In
connection with the acquisition of Caruth Haven Court, we entered into a $14.0
million acquisition bridge loan with Cornerstone Operating Partnership, L.P. a
wholly-owned subsidiary of Cornerstone Core Properties REIT, Inc., a
publicly-offered, non-traded REIT sponsored by affiliates of our
advisor. The note payable to related party matures on January 21,
2010, with no option to extend and bears interest at a variable rate
of 300 basis points over the prime rate for the term of the loan
(3.25% at September 30, 2009). We may repay the loan, in
whole or in part, on or before January 21, 2010 without incurring any prepayment
penalty We expect to refinance this bridge loan
with a new mortgage loan before its due date. Monthly installments on
the loan are interest-only and the entire principal amount is due on the
maturity date, assuming no prior principal prepayment. As of September 30, 2009,
the outstanding balance of the note payable was $14.0 million. The loan
agreement contains various covenants including financial covenants with respect
to debt service coverage ratios, fixed charge coverage ratio and tenant rent
coverage ratio. As of September 30, 2009, we were in compliance with
all these financial covenants. For the
three months ended September 30, 2009 and 2008, interest expense for note
payable to related party was $224,000 and $0 respectively. For the nine months
ended September 30, 2009 and 2008, interest expense for note payable to related
party was $615,000 and $0, respectively.
The loan
is secured by a deed of trust on Caruth Haven Court, and by an assignment of the
leases and rents payable to the borrower including, the rents payable under the
lease described above between the borrower, as landlord, and Caruth Haven TRS,
LLC, as tenant. As further security for the loan, the
lender has been granted a security interest in rents from the
property.
11.
|
Commitments
and Contingencies
|
We
monitor our properties for the presence of hazardous or toxic
substances. While there can be no assurance that a
material environment liability does not exist, we are not currently aware of any
environmental liability with respect to the properties that would have a
material effect on our financial condition, results of operations and cash
flows. Further, we are not aware of any environmental
liability or any unasserted claim or assessment with respect to an environmental
liability that we believe would require additional disclosure or the recording
of a loss contingency.
Our
commitments and contingencies include the usual obligations of real estate
owners and operators in the normal course of business. In
the opinion of management, these matters are not expected to have a material
impact on our consolidated financial position, cash flows and results of
operations. We are not presently subject to any material
litigation nor, to our knowledge, are any material litigation threatened against
the Company which if determined unfavorably to us would have a material adverse
effect on our cash flows, financial condition or results of
operations.
12.
|
Pro
Forma Financial Information
|
On
January 22, 2009 and May 1, 2009, we completed the purchase of Caruth Haven
Court and Windsor Oaks, respectively. The following
summary provides the allocation of the acquired assets and liabilities of Caruth
Haven Court and Windsor Oaks as of the respective dates of
acquisitions. We have accounted for the acquisitions of
Caruth Haven Court and Windsor Oaks as a business combination under U.S. GAAP.
Under business combination accounting, the assets and liabilities of Caruth
Haven Court and Windsor Oaks were recorded as of the acquisition date, at their
respective fair values, and consolidated in our condensed consolidated financial
statements. The break down of the purchase price of Caruth Haven Court and
Windsor Oaks is as follows:
|
|
Allocation
|
|
|
Land
|
|
$
|
4,646,000
|
|
Buildings
& improvements
|
|
16,604,000
|
|
|
Site
improvements
|
|
201,000
|
|
|
Furniture
& fixtures
|
|
384,000
|
|
|
In
place lease value
|
|
2,025,000
|
|
|
Tenant
relationship value
|
|
118,000
|
|
|
Other
assets
|
|
295,000
|
|
|
Security
deposits and other liabilities
|
|
(249,000
|
)
|
|
Goodwill
|
|
769,000
|
|
|
Real
estate acquisitions
|
|
$
|
24,793,000
|
|
The
following unaudited pro forma information for the nine months ended September
30, 2009 and 2008 has been prepared to reflect the incremental effect of the
acquisition as if such acquisition had occurred on January 1, 2009 and
2008. As acquisitions are assumed to have been made on
January 1, 2009 and 2008, the shares raised during our offering needed to
purchase the property are assumed to have been sold and outstanding as of
January 1, 2009 and 2008 for purposes of calculating per share
data.
For the
nine months ended September 30, 2009, revenue and net loss of approximately $4.6
million and approximately $1.3 million, respectively, were included in the
consolidated statement of operations related to the acquisitions.
Nine months Ended | Nine months Ended | |||||||
|
|
September 30,
2009
|
|
|
September 30,
2008
|
|
||
Revenues
|
|
$
|
5,416,000
|
|
|
$
|
5,886,000
|
|
Property
operating and maintenance expenses
|
|
$
|
4,506,000
|
|
|
$
|
4,627,000
|
|
Loss
from operations
|
|
$
|
(910,000
|
)
|
|
$
|
(1,259,000
|
)
|
Basic
and diluted net loss per common share attributable to common
stockholders
|
|
$
|
(0.16
|
)
|
|
$
|
(3.05
|
)
|
13.
|
Subsequent
Events
|
Sale
of Shares of Common Stock
As
of November 13, 2009, we had raised approximately $42.1 million through the
issuance of approximately 4.2 million shares of our common stock under our
Offering, excluding, approximately 85,000 shares that were issued pursuant to
our distribution reinvestment plan reduced by approximately 18,000 shares
pursuant to our stock repurchase program.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The
following “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” should be read in conjunction with our financial
statements and notes thereto contained elsewhere in this
report. This section contains forward-looking statements,
including estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon which those
statements are based. These forward-looking statements
generally are identified by the words “believes,” “project,” “expects,”
“anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,”
“would,” “will be,” “will continue,” “will likely result,” and similar
expressions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking
statements. Forward-looking statements were true at the
time made may ultimately prove to be incorrect or
false. We undertake no obligation to update or revise
publicly any forward –looking statements, whether as a result of new
information, future events or otherwise. All
forward-looking statements should be read in light of the risks identified in
Part I, Item 1A of our annual report on Form 10-K for the year ended December
31, 2008, Part II, Item 1A of our quarterly reports on Form 10-Q for the
quarters ended June 30, 2009 and March 31, 2009, both as filed with the SEC, and
the risk identified in Part II, Item 1A of this quarterly report.
Overview
We were
incorporated on October 16, 2006 for the purpose of engaging in the business of
investing in and owning commercial real estate. We intend to invest
the net proceeds from the Offering primarily in investment real estate including
health care, multi-tenant industrial, net-leased retail properties and other
real estate related assets located in major metropolitan markets in the United
States. As of September 30, 2009, we raised approximately
$35.5 million of gross proceeds from the sale of approximately 3.6 million
shares of our common stock.
Our
revenues, which will be comprised largely of rental income, will include rents
reported on a straight-line basis over the initial term of the lease. Our growth
depends, in part, on our ability to (i) increase rental income and
other earned income from leases by increasing rental rates and occupancy levels;
(ii) maximize tenant recoveries given the underlying lease
structures; and (iii) control operating and other expenses. Our
operations are impacted by property specific, market specific, general economic
and other conditions.
Market
Outlook – Real Estate and Real Estate Finance Markets
During
2008 and 2009, significant and widespread concerns about credit risk and access
to capital have been present in the global capital markets. Both the national
and most global economies have experienced substantially increased unemployment
and a downturn in economic activity. In addition, the failure or near failure of
several large financial institutions early in this period and the continued
failures of smaller financial institutions and businesses, together with
government interventions in the financial system, including interventions in
bankruptcy proceedings and restrictions on businesses, have led to increased
market uncertainty and volatility. Despite certain recent positive economic
indicators and improved stock market performance, the aforementioned conditions,
combined with stagnant business activity and low consumer confidence, have
resulted in an unprecedented global recession and continue to contribute to a
challenging macro-economic environment that may interfere with the
implementation of our business strategy or force us to modify it.
As a
result of the decline in general economic conditions, the U.S. commercial real
estate industry has also been experiencing deteriorating fundamentals across all
major property types and most geographic markets. Tenant defaults are on the
rise, while demand for commercial real estate space is contracting. It is
expected that this will create a highly competitive leasing environment that
should result in downward pressure on both occupancy and rental rates, resulting
in leasing incentives becoming more common. Mortgage delinquencies and defaults
have trended upward, with many industry analysts predicting significant credit
defaults, foreclosures and principal losses, in particular for subordinate
securitized debt instruments.
From a
financing perspective, the severe dislocations and liquidity disruptions in the
credit markets have impacted both the cost and availability of commercial real
estate debt. The commercial mortgage-backed securities (“CMBS”) market, formerly
a significant source of liquidity and debt capital, has become inactive and has
left a void in the market for long-term, affordable, fixed rate debt. This void
has been partially filled by portfolio lenders such as insurance companies, but
at very different terms than were available in the past five years. These
remaining lenders have generally increased credit spreads, lowered the amount of
available proceeds, required recourse security and credit enhancements, and
otherwise tightened underwriting standards considerably, while simultaneously
generally limiting lending to existing relationships with borrowers that invest
in high quality assets in top tier markets. In addition, lenders have limited
the amount of financing available to existing relationships in an effort to
manage and mitigate the risk of overconcentration in certain
borrowers.
Currently,
benchmark interest rates, such as LIBOR, are at historic lows, allowing some
borrowers with variable rate real estate loans to continue making debt service
payments even as the properties securing these loans experience decreased
occupancy and lower rental rates. These low rates have benefitted borrowers with
floating rate debt who have experienced lower revenues due to decreased
occupancy or lower rental rates. Low short-term rates have allowed them to meet
their debt obligations but the borrowers would not meet the current underwriting
requirements needed to refinance this debt today. As these loans near maturity,
borrowers will find it increasingly difficult to refinance these loans in the
current underwriting environment.
These
market conditions have and will likely continue having a significant impact on
our real estate investments. Increase in marketing expenses may be required to
attract and retain tenants in order to maintain our occupancy level, which is
vital to the continued success of our portfolio, may result in lower cash flow
available for distributions.
Critical
Accounting Policies
There
have been no material changes to our critical accounting policies as previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008, as filed with the SEC.
Results
of Operations
We began
accepting subscriptions for shares under our initial public offering on June 20,
2008. Operating results in future periods will depend on
the results of the operation of the real estate properties that we acquire.
Results of operations for the nine months ended September 30, 2009 and September
30, 2008 are not comparable as they reflect different stages of
operations. During the nine months ended September 30,
2009, we acquired two real estate properties, one on January 22, 2009 and the
other on May 1, 2009. For the nine months ended September
30, 2008, we owned no real estate properties. We have no
paid employees and are externally advised.
Comparison
of the Three Months Ended September 30, 2009 to the Three Months Ended September
30, 2008
We owned
two properties during the three months ended September 30, 2009 and none for the
comparable period of 2008.
As a
result of the acquisitions in 2009, total revenues increased to $1,889,000,
property operating and maintenance expenses increased to $1,499,000, asset
management fees increased to $60,000 and depreciation and amortization increased
to $406,000. There were no comparable revenue and expenses in the third quarter
of 2008.
For the
third quarter of 2009, real estate acquisition costs increased to $252,000 from
$102,000 for the comparable 2008 period. The increase
related to the portion of the acquisition fee paid on receipt of offering
proceeds was primarily due to the three full months of fund raising in the third
quarter of 2009 compared to one and one-half months for the comparable period in
2008.
General
and administrative expenses decreased to $211,000 from $287,000 for the
comparable 2008 period primarily due to the decrease of approximately $87,000 in
organizational start-up costs offset by an increase of approximately $11,000 of
professional expenses.
Interest
expense in the third quarter of 2009 increased to $293,000 from $0 for the
comparable period of 2008 due to financing of two real estate
acquisitions.
Comparison
of the Nine months Ended September 30, 2009 to the Nine months Ended September
30, 2008
We
acquired two properties during the nine months ended September 30, 2009 and
owned none for the comparable period of 2008.
As a
result of the acquisitions in 2009, total revenues increased to $4,589,000,
property operating and maintenance expenses increased to $3,691,000, asset
management fees increased to $151,000 and depreciation and amortization
increased to $958,000. There were no comparable revenue and expenses in the nine
months ended September 30, 2008.
For the
nine months ended September 30, 2009 and September 30, 2008 real estate
acquisition costs increased to $1,101,000 from $102,000,
respectively. The increase is primarily due to approximately
$703,000 of real estate acquisition expenses related to two acquisitions in 2009
and approximately $296,000 of acquisition fee paid on receipt of
offering proceeds as compared to only one and one-half months of fund raising in
2008.
General
and administrative expenses increased to $839,000 from $660,000 for the
comparable 2008 period primarily due to increased tax and accounting
fees and costs and board of director fees associated with
increased operating activity in 2009.
Interest
expense for the nine months ended September 30, 2009 increased to $760,000 from
$1,000 for the comparable period of 2008 due to financing of two real estate
acquisitions.
Liquidity
and Capital Resources
We expect
that primary sources of capital over the long term will include net proceeds
from the sale of our common stock and net cash flows from
operations. We expect that our primary uses of capital
will be for property acquisitions, for the payment of tenant improvements,
operating expenses, interest expense on any outstanding indebtedness, capital
expenditures, debt repayment and payment of distributions.
As of
September 30, 2009, we had approximately $18.7 million in cash and cash
equivalents on hand. Our liquidity will increase as
additional subscriptions for shares are accepted in our public offering and
decrease as net offering proceeds are expended in connection with the
acquisition and operation of properties.
As of
September 30, 2009, the Advisor had incurred approximately $3.2 million in
organization and offering expenses, including approximately $0.1 million of
organizational costs that have been expensed. Of this
amount, we have reimbursed $1.5 million to The
Advisor. The Advisor may advance us money for these
organization and offering expenses or may pay these expenses on our
behalf. The Advisor does not charge us interest on these
advances. We will repay these advances and reimburse the
Advisor for expenses paid on our behalf using the gross proceeds of our
Offering, but in no event will we have any obligation to reimburse the Advisor
for these costs totaling in excess of 3.5% of the gross proceeds from our
primary offering. At times during our offering stage, the amount of organization
and offering expenses that we incur, or that the Advisor and its affiliates
incur on our behalf, may exceed 3.5% of the gross offering proceeds then raised,
but our Advisor has agreed to reimburse us to the extent that our organization
and offering expenses exceed this 3.5% limitation at the conclusion of our
Offering. At September 30, 2009, organization and offering
costs reimbursed to the Advisor are approximately 4.3% of the gross proceeds of
our Primary Offering. In addition, the Advisor will pay
all of our organization and offering expenses that, when combined with the sales
commissions and dealer manager fees that we incur exceed 13.5% of the gross
proceeds from our Offering.
We will
not rely on advances from the Advisor to acquire properties but the Advisor and
its affiliates may loan funds to special purposes entities that may acquire
properties on our behalf pending our raising sufficient proceeds from our
initial public offering to purchase the properties from the special purpose
entity.
We intend
to own our core plus properties with low to moderate levels of debt financing.
We will incur moderate to high levels of indebtedness when acquiring our
value-added and opportunistic properties and possibly other real estate
investments. The debt levels on core plus properties during the offering period
may exceed the long-term target range of debt percentages on these types of
properties. However, we intend to reduce the percentage
to fall within the 40% to 50% range no later than the end of our offering
stage. To the extent sufficient proceeds from our public
offering, debt financing, or a combination of the two are unavailable to repay
acquisition debt financing down to the target ranges within a reasonable time as
determined by our board of directors, we will endeavor to raise additional
equity or sell properties to repay such debt so that we will own our properties
with low to moderate levels of permanent financing. In the event that our
Offering is not fully sold, our ability to diversify our investments may be
diminished.
There may
be a delay between the sale of our shares and the purchase of
properties. During this period, our Offering net proceeds
will be temporarily invested in short-term, liquid investments that could yield
lower returns than investments in real estate.
Until
proceeds from our public offering are invested and generating operating cash
flow sufficient to fully fund distributions to stockholders, we intend to pay a
portion of our distributions from the proceeds of our Offering or from
borrowings in anticipation of future cash flow. For the
nine months ended September 30, 2009, distributions to stockholders were paid
from proceeds from our Offering.
Potential
future sources of capital include proceeds from future equity offerings,
proceeds from secured or unsecured financings from banks or other lenders,
proceeds from the sale of properties and undistributed funds from operations. If
necessary, we may use financings or other sources of capital at the discretion
of our board of directors.
Financial
markets have recently experienced unusual volatility and uncertainty. Liquidity
has tightened in all financial markets, including the debt and equity
markets. Our ability to fund property acquisitions or
development projects, as well as our ability to repay or refinance debt
maturities could be adversely affected by an inability to secure financing at
reasonable terms, if at all.
Funds
from Operations
Funds
from operations (“FFO”) is a non-GAAP financial measure that is widely
recognized as a measure of REIT operating performance. We
compute FFO in accordance with the definition outlined by the National
Association of Real Estate Investment Trusts
(“NAREIT”). NAREIT defines FFO as net income (loss),
computed in accordance with GAAP, excluding extraordinary items, as defined by
GAAP, and gains (or losses) from sales of property, plus depreciation and
amortization on real estate assets, and after adjustments for unconsolidated
partnerships, joint ventures and subsidiaries. Our FFO
may not be comparable to FFO reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. We believe that
FFO is helpful to investors and our management as a measure of operating
performance because it excludes depreciation and amortization, gains and losses
from property dispositions, and extraordinary items, and as a result, when
compared year to year, reflects the impact on operations from trends in
occupancy rates, rental rates, operating costs, development activities, general
and administrative expenses, and interest costs, which is not immediately
apparent from net income. Historical cost accounting for
real estate assets in accordance with GAAP implicitly assumes that the value of
real estate diminishes predictably over time. Since real
estate values have historically risen or fallen with market conditions, many
industry investors and analysts have considered the presentation of operating
results for real estate companies that use historical cost accounting alone to
be insufficient. As a result, our management believes
that the use of FFO, together with the required GAAP presentations, provide a
more complete understanding of our performance. Factors
that impact FFO include start-up costs, fixed costs, delay in buying assets,
lower yields on cash held in accounts pending investment, income from portfolio
properties and other portfolio assets, interest rates on acquisition financing
and operating expenses. FFO should not be considered as
an alternative to net income (loss), as an indication of our performance, nor is
it indicative of funds available to fund our cash needs, including our ability
to make distributions. Our calculations of FFO for the
three months and nine months ended September 30, 2009 and 2008 are presented
below:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
||||||||||
|
|
September 30,
|
|
|
September 30,
|
|
||||||||||
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net
loss
|
|
$
|
(829,000
|
)
|
|
$
|
(387,000
|
)
|
|
$
|
(2,905,000
|
)
|
|
$
|
(761,000
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net
loss (income) attributable to noncontrolling interests
|
|
|
8,000
|
|
|
|
(3,000
|
)
|
|
42,000
|
|
|
124,000
|
|
||
Depreciation
and amortization
|
|
|
406,000
|
|
|
|
—
|
|
|
958,000
|
|
|
—
|
|
||
Funds
from operations (FFO)
|
|
$
|
(415,000
|
)
|
|
|
(390,000
|
)
|
|
$
|
(1,905,000
|
)
|
|
$
|
(637,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Weighted
average shares outstanding
|
|
|
2,775,594
|
|
|
|
107,743
|
|
|
1,682,899
|
|
|
14,452
|
|
In
addition, FFO may be used to fund all or a portion of certain capitalizable
items that are excluded from FFO, such as capital expenditures and payments of
principal on debt, each of which may impact the amount of cash available for
distribution to our stockholders.
To date
all of our distributions have been paid from sources other than operating cash
flow, such as offering proceeds and proceeds from loans including those secured
by our asset. Currently, we make cash distributions to
our stockholders from capital at an annualized rate of 7.5%, based on a $10.00
per share purchase price. These distributions are being paid in anticipation of
future cash flow from our investments. Until proceeds from our public offering
are invested and generating operating cash flow sufficient to make distributions
to stockholders, we intend to pay all or a substantial portion of our
distributions from the proceeds of our public offering or from borrowings in
anticipation of future cash flow, reducing the amount of funds that would
otherwise be available for investment.
|
Distributions
Declared
|
Cash
Flow from
|
Funds
from
|
|||||||||||||||||
Period
|
Cash
|
Reinvested
|
Total
|
Operations
|
Operations
|
|||||||||||||||
Third
quarter 2008
|
$ | 14,000 | $ | 18,000 | $ | 32,000 | $ | (600,000 | ) | $ | (390,000 | ) | ||||||||
Third
quarter 2009
|
$ | 266,000 | $ | 284,000 | $ | 550,000 | $ | (321,000 | ) | $ | (416,000 | ) |
Contractual
Obligations
The
following table reflects our contractual obligations as of September 30, 2009,
specifically our obligations under long-term debt agreements and purchase
obligations:
|
|
Payment
due by period
|
|
|||||||||||||||||
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
|||||
Long-Term
Debt Obligations (1)
|
|
$
|
16,760,000
|
|
|
$
|
14,013,000
|
|
|
$
|
134,000
|
|
|
$
|
2,612,000
|
|
|
$
|
—
|
|
Interest
expense related to long term debt (2)
|
|
$
|
928,000
|
|
|
$
|
353,000
|
|
|
$
|
473,000
|
|
|
$
|
102,000
|
|
|
$
|
—
|
|
_________________________
(1) These
obligations represent three loans outstanding as of September 30,
2009: (1) the acquisition bridge loan of $14.0 million
which is secured by the Caruth Haven Court property with Cornerstone Operating
Partnership, L.P. a wholly owned subsidiary of Cornerstone Core Properties REIT,
Inc., a publicly offered, non-traded REIT sponsored by our
sponsor. The principal balance will be due on
January 21, 2010; (2) a $2.4 million mortgage loan with The PrivateBank and
Trust Company in connection with the acquisition of Windsor
Oaks. The principal balance will be due on May 1, 2014
and (3) a $0.36 million loan with the PrivateBank and Trust Company in
connection with the acquisition of Windsor Oaks. The
principal balance will be due on May 1, 2014.
(2) Interest
expense related to the acquisition bridge loan is calculated based on the loan
balance outstanding at September 30, 2009, one month Wall Street Journal Index
3.25% at September 30, 2009 plus margin of
3.00%. Interest expense related to $2.4 million mortgage
loan agreement with The PrivateBank and Trust Company is a fixed rate of 6.25%
per annum. Monthly payments for the first twelve months
are interest-only. Monthly payments beginning the
thirteenth month will include interest and principal based on a 25-year
amortization period. Interest expense for the remaining
$0.36 million loan is calculated based on a variable interest rate equivalent to
prevailing market certificate deposits rate of 1.45% at September 30, 2009 plus
margin of 1.5%.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Market
risk includes risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that
affect market sensitive instruments. We invest our cash
and cash equivalents in government backed securities and FDIC insured savings
account which, by its nature, are subject to interest rate
fluctuations. However, we believe that the primary market
risk to which we will be exposed is interest rate risk relating to a $14.0
million acquisition bridge loan (the “Bridge Loan”) that we entered into in
connection with the acquisition of Caruth Haven Court and $2.76 million loan
(the “PrivateBank Loan”) that we entered into in connection with the acquisition
of Windsor Oaks.
The
Bridge Loan matures on January 21, 2010, with no option to extend and bears
interest at a variable rate of 300 basis points over prime rate for the term of
the loan. We may repay the loan, in whole or in part, on
or before January 21, 2010 without incurring any prepayment
penalty. As of the date of this filing, we have an
outstanding balance of approximately $14.0 million payable under the Bridge
Loan. An increase in the variable interest rate on the
Bridge Loan constitutes a market risk as a change in rates would increase or
decrease interest incurred and therefore cash flows available for distribution
to shareholders. Based on the debt outstanding as of the
date of this filing, a 1% change in interest rates would result in a change in
annual interest expense of approximately $140,000 per year.
The
PrivateBank Loan is comprised of a $2.4 million fixed rate portion and a $0.36
million variable rate portion. The fixed rate portion
matures on May 1, 2014 with no option to extend and bears a fixed interest rate
of 6.25% per annum. The variable rate portion matures on May 1, 2014 and bears a
variable interest rate equivalent to prevailing market certificate deposits rate
plus a 1.5% margin. We may repay the loan, in whole or in part, on or before May
1, 2014, subject to prepayment premiums.
An
increase in the variable interest rate on the PrivateBank loan constitutes a
market risk. Based on the outstanding balance as of the
date of this filing, a 1% change in interest rates would result in a change in
annual interest expense of approximately $4,000 per year.
Our
interest rate risk management objectives will be to monitor and manage the
impact of interest rate changes on earnings and cash flows by using certain
derivative financial instruments such as interest rate swaps and caps in order
to mitigate our interest rate risk on variable rate
debt. We will not enter into derivative or interest rate
transactions for speculative purposes.
In
addition to changes in interest rates, the value of our real estate is subject
to fluctuations based on changes in the real estate capital markets, market
rental rates for office space, local, regional and national economic conditions
and changes in the credit worthiness of tenants. All of
these factors may also affect our ability to refinance our debt if
necessary.
Item 4. Controls and
Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our senior management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. Our Chief Executive Officer and our Chief
Financial Officer have reviewed the effectiveness of our disclosure controls and
procedures and have concluded that the disclosure controls and procedures were
effective as of the end of the period covered by this report.
In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
There
have been no changes in our internal control over financial reporting during our
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
The
following risk supplements the risks disclosed in Part I, Item 1A if our annual
report on Form 10-K for the fiscal year ended December 31, 2008 and Part II,
Item 1A of our quarterly reports on Form 10-Q for the quarters ended June 30,
2009 and March 31, 2009.
We
have, and may in the future, pay distributions from sources other than cash
provided from operations.
Until
proceeds from this offering are invested and generating operating cash flow
sufficient to make distributions to stockholders, we intend to pay a substantial
portion of our distributions from the proceeds of our offerings or from
borrowings in anticipation of future cash flow. To the extent that we use
offering proceeds to fund distributions to stockholders, the amount of cash
available for investment in properties will be reduced. The
distributions paid for the four quarters ended September 30, 2009 were
approximately $1.1 million. Of this amount approximately $0.6 million was
reinvested through our dividend reinvestment plan and approximately $0.5 million
was paid in cash to stockholders. For the four quarters ended September 30, 2009
cash flow from operations and FFO were approximately $(2.0) million and $(2.4)
million, respectively. Accordingly, for the four quarters ended September 30,
2009, total distributions exceeded cash flow from operations and FFO for the
same period. During the four quarters ended September 30, 2009, we
used offering proceeds to pay cash distributions.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
On August
10, 2007, our Registration Statement on Form S-11 (File No. 333-139704),
covering a public offering of up to 40,000,000 shares of common stock for an
aggregate offering amount of $400 million was declared effective under the
Securities Act of 1933. The offering has not terminated
yet. As of September 30, 2009, we had sold approximately
3.6 million shares of common stock in our ongoing public offering and raised
gross offering proceeds of approximately $35.5
million. From this amount, we incurred approximately $3.5
million in selling commissions and dealer manager fees payable to our dealer
manager and approximately $0.9 million in acquisition fees payable to the
Advisor. We had acquired two properties as of September
30, 2009.
Item 6.
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Exhibits
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
|
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
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|
|
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Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Sec.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this quarterly report to be
signed on its behalf by the undersigned, thereunto duly authorized this 13th day
of November 2009.
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CORNERSTONE
GROWTH & INCOME REIT, INC.
|
|
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|
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By:
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/s/
TERRY G. ROUSSEL
|
|
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Terry
G. Roussel, Chief
Executive Officer
|
|
|
|
|
|
|
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By:
|
/s/
SHARON C. KAISER
|
|
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Sharon
C. Kaiser, Chief
Financial Officer
|
|
|
(Principal
Financial Officer and
|
|
|
Principal
Accounting Officer)
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26